US Racing Toward 13-Figure Annual Deficits

US Treasury Department recently announced that the federal budget deficit for fiscal 2017 totaled $666 billion, up $80 billion from 2016—and the outlook for annual deficits is only getting worse. Economists at Goldman Sachs just increased their deficit forecasts for the next few years “to reflect the effect of disaster spending, expected tax cuts, and an increase in spending caps.”

Goldman now projects the deficit to reach $750 billion in 2018, or 3.7% of GDP, up from 3.5% this year. Goldman sees the deficit rising to $900 billion (4.3% of GDP) in fiscal 2019 and $1.025 trillion (4.7% of GDP) in 2020, Yahoo reported.

The estimates are $50 billion higher than Goldman’s previous forecast for 2018 and $75 billion higher for each of the following two years. They are also significantly higher than the Congressional Budget Office’s most recent projections, released in June, which said the deficit wouldn’t reach $1 trillion until 2022—though those baseline estimates assume that current tax and spending laws won’t be changed. Budget expert Stan Collender also says: “We’re racing toward 13-figure annual deficits. The spending and taxing policies about to be put in place by the Trump administration and the Republican-controlled Congress will balloon the federal deficit to $1 trillion and more every year going forward,” he writes at Forbes.

“And unlike the four consecutive $1 trillion deficits recorded during the first years of the Obama administration, these trillion dollar annual deficits will be the result of enacted changes in federal spending and taxing rather than on a temporary economic downturn. Some of these changes will be permanent. Others will need to be reapproved annually but are unlikely to be rejected in the future.”

In other words, barring a drastic change to the tax cut plan Republicans have out forth or an unforeseen focus on spending cuts and entitlement reforms, “the Trump/GOP-supported $1 trillion budget deficits are the new normal.”

And actual deficits could end up being even larger than projected, Collender warns. “If the economy doesn’t grow as fast as Trump is promising, additional Pentagon spending is needed for military reasons and interest rates rise more than anticipated because of the increased federal borrowing, consecutive deficits between $1.2 trillion and $1.5 trillion are not out of the question.”

While the White House and its congressional supporters insist the tax cut the House and Senate will consider in the next month or so will eventually pay for itself with much higher economic growth rates, the congressional budget resolution passed by the Senate late last Thursday (and highly likely to be accepted by the House) assumes that the deficit will increase by about $150 billion a year over the next 10 years.  Nonpartisan analyses show that the deficit will increase by an average of between $220 billion and $240 billion between 2018 and 2027 and even more thereafter.

 An average of the three estimates results in about a $200 billion increase in the budget deficit for each of the next five years. That will make the annual deficit around $940 billion.