Trump’s Tax Cuts Drive Up Federal Deficits
Trump’s tax cuts are anticipated to help the average American family put more money in the bank – but they come with a big price tag for the U.S. government. Specifically, the tax cuts, coupled with spending bills, are expected to significantly increase the federal deficit. While it is true that a deficit is nothing new in the U.S. – the government has, in fact, ran a deficit every year since 2002 – it is expected to go to new heights over the course of the next decade.
According to new projections released by the nonpartisan Congressional Budget Office (CBO) in April, the government’s annual budget deficit is now anticipated to surpass $1 trillion by 2020. That will drive national debt – which currently stands at around $21 trillion – up to $33 trillion by 2028. That would make national debt equivalent in value to the entire economy (at roughly 96 percent of GDP), the highest level at any point since the immediate aftermath of World War II. And by 2023, interest payments on the debt are forecasted to exceed the government’s military expenditure, hitting an estimated $915 billion, making them one of the single largest expenses in the national budget.
The April forecasts released by the CBO in April paint a much bleaker picture than those released by the CBO in July, before Trump’s tax cuts. Economists and the CBO alike have concerns that debt levels that high could have deleterious consequences for the U.S. economy. They argue that high levels of debt will force the government to spend considerably more on interest rates, put downward pressure on labor and productivity, and leave lawmakers with much less financial flexibility to respond to emergencies or disasters, ultimately concluding that debt levels that high leave the U.S. more exposed to the risk of a financial crisis.
“Such high and rising debt would have serious negative consequences for the budget and the nation,” the CBO explained in its recent report. “The likelihood of a fiscal crisis in the United States would increase. There would be a greater risk that investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates; if that happened, interest rates on federal debt would rise suddenly and sharply.”
Some warn that unless spending is curbed now, lawmakers may have to take draconian steps down the line to respond to a financial crisis.
“A day of reckoning is likely to come at some point where the United States will have to raise taxes or cut benefits and programs that many people have come to rely on — or some combination of both,” expert Heather Long warned in the Washington Post. “The U.S. government hasn’t tested that level of debt — where debt held by the public equals the entire size of the U.S. economy — in the modern era.”
So, what does the future hold? Well, it is too still early to tell. But many warn the bigger the debt, the bigger the chance of crisis – and the longer the government puts off taking action, the worse it will be.
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