The size of the federal budget deficit will rise over the next decade, in part due to recent tax and spending legislation, crossing the $1 trillion mark by 2020, according to new projections by the Congressional Budget Office.
In addition, the national debt, as measured by what is owed to the public, will nearly double, rising from $14.7 trillion in fiscal year 2017 to $28.7 trillion in 2029 according to the CBO, a nonpartisan office in Congress that produces independent analyses of budgetary and economic issues to support the Congressional budget process.
Projections: The Deficit
In April, 2018, the CBO published revised deficit projections factoring Public Law 115-97 (originally introduced to Congress as the Tax Cuts and Jobs Act), the Bipartisan Budget Act of 2018, and the Consolidated Appropriations Act, 2018. This combination of legislation decreased the federal government’s anticipated revenue and increased estimated expenditures which modified the CBO’s deficit forecast as initially published in June, 2017. It is anticipated that the federal government’s outlays will continue to exceed receipts continuing a deficit trend over the next decade. Below, current deficit projections from the April, 2018 report are in green while the projections from June 2017 are in gray. The bar in 2017 represents the actual deficit.
History: Budget Deficits and Surpluses by President
For the past 40 fiscal years, there have been 36 deficits and four surpluses, all four occurring in the second Clinton administration. Historically, it is not typical to for the deficit to significantly expand outside of a recession, depression, or war. Here are the budget balances by fiscal year and presidential administraion. Since the federal government’s fiscal year begins on Oct. 1, there is some administration overlap. For example, the 2017 fiscal year budget was worked out under President Barack Obama and went into effect three and a half months before President Donald Trump took office. Click on the bars for details.
President at beginning of each fiscal year
Spending too much, taking in too little
Another way of seeing the deficits and surpluses is to track the federal government’s revenue (the green area) and spending (the red line). When spending exceeds revenue, the result is a deficit.
Running Deficits, Incresing Debt
The CBO’s latest projections estimate that debt held by the public, which is the government’s debt owed to individuals, companies, local governments, foreign entities, and Federal Reserve Banks, will continue to increase over the next decade. Current projections estimate that the debt will rise to nearly $28.7 trillion by the end of 2028. Publically held debt differs from gross federal debt which includes or funds the government owes itself, or intragovernmental debt.
Interest on Debt
Just like a personal loan, the government pays interest on the money it borrows. The CBO projects that the net interest paid on its debt will nearly triple over the next decade from an estimated $316 billion in 2018 to $915 billion in 2028. A presumed climb in interest rates over the next few years factor in the exponential growth rate.
Debt as a percentage of GDP
The GDP, or gross domestic product, mesaures the value the goods and services produced by a country in a given period of time and indicates economic output. The national debt as a percentage of the GDP has grown steadily after the 2008 recession. The CBO predicts the debt will rise to nearly 100% of the nation’s GDP by 2028, which is the highest amount of debt relative to the size of the economy in the United States since 1946. The CBO cautions that growing debt can result in negative consequences such as less flexibility to respond to unexpected challenges and the risk of investors being unwilling to finance the government’s borrowing.