U.S. annual budget deficit to surpass 1 trln United States dollars by 2020

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The U.S. budget deficit will surpass $1 trillion by 2020, two years sooner than previously estimated, as tax cuts and spending increases signed by President Donald Trump do little to boost long-term economic growth, according to the Congressional Budget Office.

Last year's deficit registered $665 billion, which was well below the record $1.4 trillion posted during Obama's first year in office, when the Great Recession led to plunging revenues and a spike in spending.

A new report warns that the U.S. is heading for $1 trillion annual federal deficits, and the Congressional Budget Office says that's going to radically raise the nation's debt in just a decade. That's more than the $US665 billion shortfall at the end of fiscal 2017 and $US242 billion more than the CBO projected last (northern) summer.

Market Pulse Stories are Rapid-fire, short news bursts on stocks and markets as they move. "It also reflects significant growth in interest costs, which are projected to grow more quickly than any other major component of the budget [as] the result of rising interest rates and mounting debt".

The policy implications are clear: substantial entitlement reforms are, and always were, necessary if the USA were to have any hope at preventing ever-rising federal debt (as Brian Riedl indicates in this excellent post). In our projections, budget deficits continue increasing after 2018.

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Debt held by the public, which has doubled in the past 10 years as a percentage of gross domestic product (GDP), will approach 100 percent of GDP by 2028.

Instead, Monday's report estimates that the GOP tax bill, which is Republican-controlled Washington's signature accomplishment under Trump, will add $1.8 trillion to the deficit over the coming decade, even after its positive effects on the economy are factored in. Others argued the CBO has it wrong, including Tax Analysts chief economist Martin Sullivan, who tweeted that the agency is "simply incorrect".

The CBO data clearly shows that revenue as a proportion of GDP was expected to have risen back to its 2017 level by 2023 even before the expiration of many tax cuts, showing that from then on its rising spending that is driving the worsening outlook in debt over this period. The House is set to vote Thursday on a balanced-budget amendment to the Constitution.

While the deficit is on the rise, Congress doesn't seem to be likely to cut spending.

In fact America could be staring at a decade where the size of its debt and budget deficit starts growing faster than the economy, and if the economy slows, then the situation will worsen dramatically.

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