By Amanda Becker
WASHINGTON (Reuters) – The U.S. budget deficit will balloon over the next few years mainly because of deep tax cuts approved in December by congressional Republicans and President Donald Trump, the nonpartisan Congressional Budget Office said on Monday.
The deficit – the amount that Washington’s spending exceeds its revenues – will grow to $804 billion in fiscal 2018, which ends on Sept. 30, up from $665 billion in fiscal 2017, the CBO said, despite expectations of stronger near-term economic growth than the agency previously forecast.
The CBO forecast that deficits will “increase rapidly this year and over the next few years,” then stabilize, resulting in a projected cumulative deficit of $11.7 trillion for 2018-2027.
Tax cuts and a recent $1.3 trillion federal spending package are expected to drive economic growth, adding to momentum in discretionary spending by businesses and households over the next two years, the CBO said.
The CBO forecast 3.3 percent growth in 2018 in real gross domestic product, a broad measure of the economy, and 2.4 percent GDP growth in 2019, higher estimates than the CBO forecast last year.
The unemployment rate will drop during this period, and inflation and interest rates will rise, eventually causing GDP growth to slow from 2020 to 2026, the CBO said. The expiration of lower individual tax rates at the end of 2025 will add to slowed economic growth then, the CBO added.
In the near term, the rosier-than-expected economic outlook offered by the CBO could boost the Republican economic message as Trump’s party seeks to retain control of Congress in the November midterm elections. All 435 seats in the U.S. House of Representatives and about a third of the 100-member Senate’s seats are being contested.
But swelling deficits could be a challenge for Trump and fellow Republicans as they try to pay for other parts of their political agenda, including a proposed infrastructure package and a wall that Trump wants along the U.S.-Mexican border that could cost as much as $70 billion.
The CBO’s annual report on the U.S. budget and economy typically comes out in January but was delayed this year to allow it to assess effects of the tax overhaul and spending bill. The forecast does not take into account any economic impact of the trade dispute between the United States and China.
Senate Democratic Leader Chuck Schumer said the lower revenues and higher deficits resulting from the tax overhaul will prompt Republicans to call for cuts to social safety net programs such as the Social Security retirement program and the Medicare health insurance program for the elderly.
“The CBO’s latest report exposes the scam behind the rosy rhetoric from Republicans that their tax bill would pay for itself,” Schumer said in a statement.
(Reporting by Amanda Becker; Editing by Kevin Drawbaugh and Will Dunham)