Published: Wed, April 11, 2018
Finance | By Gustavo Carr

US Deficit Racing Towards $1 Trillion as 'Fiscal Crisis' Looms

US Deficit Racing Towards $1 Trillion as 'Fiscal Crisis' Looms

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 recession led to plunging revenues and an increase in spending. Deficits would grow to $1.5 trillion by 2028 - and could exceed $2 trillion if the tax cuts are fully extended and if Washington doesn't cut spending.

Larry Kudlow, the newly appointed director of the National Economic Council, rejects these dire economic predictions.

Democrats accused Republicans of agitating for just that outcome, saying the tax cuts were created to starve the government of money to pave the way for those cuts. Market Watch notes that the US hasn't run deficits exceeding a trillion dollars since 2012.

Despite stronger-than-predicted economic growth ahead, the CBO said the deficit will grow to $804 billion in fiscal 2018, which ends on September 30, up from $665 billion in fiscal 2017.

But in their quest to pass significant legislation ahead of re-election campaigns later this year, congressional Republicans, with the support of President Donald Trump, adopted the US$ 1.5 trillion tax cut measure that has put more money in the paychecks of a large majority of American workers.

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Instead the non-partisan CBO said the cumulative debt would be the same size as the overall Gross Domestic Product in 10 years' time. "That percentage would be the largest since 1946 and well more than twice the average over the past five decades", CBO says.

Republicans treated deficits of this scale as unsafe portents of civilizational collapse during Barack Obama's first term, when the economy was recovering from the greatest financial crisis in three-quarters of a century. And not a word from the debt and deficit mob and those conservatives who reckon higher spending will be inflationary. For instance, he promised to "reduce our $18 trillion in debt", said he would "freeze the budget" and even told journalist Bob Woodward he could get rid of the debt "fairly quickly". CBO is required to calculate the effects of the laws as written. Neither party actually wants to implement deep cuts to these programs, which is why they agreed once again a few weeks ago to disregard the cuts and maintain those programs.

Republicans and Democrats alike bemoaned the growing deficits Monday but offered opposing suggestions for how to deal with it. As the deficit rises sharply, the CBO expects little impact of spending and tax cuts on long-term economic growth.

The CBO notes in its report that, if the tax cuts for lower income people are renewed by Democrats in the mid 2020's then the fiscal outlook will be much darker. But for shifts in timing of payments, the deficit would have been even worse, at $848 billion, which would have been a one-year surge of 28 percent.

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