Budget office sees trillion dollar deficits on the horizon
In CBO’s projections, the federal budget deficit is about $900 billion in 2019 and exceeds $1 trillion each year beginning in 2022. Over the coming decade, deficits (after adjustments to exclude shifts in the timing of certain payments) fluctuate between 4.1 percent and 4.7 percent of gross domestic product (GDP), well above the average over the past 50 years.
But there's actually some good news in all this:
CBO’s projection of the deficit for 2019 is now $75 billion less—and its projection of the cumulative deficit over the 2019–2028 period, $1.2 trillion less—than it was in spring 2018. That reduction in projected deficits results primarily from legislative changes—most notably, a decrease in emergency spending.
In other words, it's not permanent.
So what does the CBO say is driving federal spending?
The aging of the population and the rising cost of health care contribute significantly to the growth in spending for major benefit programs, such as Social Security and Medicare. And rising debt and higher interest rates drive up the federal government’s net interest costs. Growth in outlays is curtailed by statutory limits on discretionary funding in place for the next few years.
And as for the U.S. economy:
Real GDP is projected to grow by 2.3 percent in 2019—down from 3.1 percent in 2018—as the effects of the 2017 tax act on the growth of business investment wane and federal purchases, as projected under current law, decline sharply in the fourth quarter of 2019. Nevertheless, output is projected to grow slightly faster than its maximum sustainable level this year, continuing to boost the demand for labor and to push down the unemployment rate. After 2019, annual economic growth is projected to slow further—to an average of 1.7 percent through 2023, which is below CBO’s projection of potential growth for that period. From 2024 to 2029, economic growth and potential growth are projected to average 1.8 percent per year—less than their long-term historical averages, primarily because the labor force is expected to grow more slowly than it has in the past.
The CBO, then, is predicting an economic slowdown in the near future, just as federal spending on entitlements and deficits grow.
These are projections -- not certainties. The number could change for the better, or they could get much worse. The question is whether we take steps to staunch the flow of red ink today to ensure it does not drown us tomorrow.