US budget deficit forecast to swell to $960bn by end of 2019
The US budget deficit is set to rise to $960bn this year, or 4.5 per cent of gross domestic product, on the back of lower-than-expected tax revenues, according to a dire assessment of America’s fiscal position by the non-partisan Congressional Budget Office.
As well as the increase in this year’s deficit, the CBO warned that over the next decade the US deficit would be $809bn larger than previously forecast, after President Donald Trump and congressional Democrats struck a new spending deal last month that would be only partially offset by lower-than-expected interest payments.
In a statement, Phillip Swagel, the CBO director and a former economic official in the George W Bush administration, said that the US fiscal outlook was “challenging” with debt on an “unsustainable course”.
“Lawmakers will have to make significant changes to tax and spending policies — making revenues larger than they would be under current law, reducing spending below projected amounts or adopting some combination of both approaches,” he said.
The deterioration in the US fiscal outlook was driven by the budget deal enacted by Mr Trump, after heated negotiations with Nancy Pelosi, the Democratic Speaker of the House. While it brought relief to markets by averting an imminent crisis over the US borrowing limit, it would increase deficits by $1.7tn over the next 10 years, the CBO said.
Other new factors increasing deficits by about $600bn over the next decade, compared with the CBO’s latest estimate in May, included additional spending for border security and disaster relief.
However, the ballooning US deficits would be partially contained by projections of lower interest payments, which would save the government an estimated $1.4tn over the next 10 years.
The CBO maintained its forecast of 2.3 per cent growth in 2019 compared with its earlier projection, and was not predicting the US economy would slide into recession, though growth was pegged at a yearly average of 1.8 per cent between 2020 and 2023. The CBO said that the tariffs imposed by Mr Trump on imports would deliver a 0.3 per cent hit to US GDP by next year.
The CBO report comes as Mr Trump is considering new fiscal stimulus measures — which would further add to deficits — in the form of tax cuts, to shield the US economy from a possible downturn as he heads into his re-election campaign.
But the lower-than-expected tax revenues — both on the individual and corporate side this year — defied the Trump administration’s claims, which date back to the tax cuts package passed in 2017, that tax relief pays for itself through higher growth. In May, the CBO had predicted a deficit for this year of $896bn, or 4.2 per cent of GDP.