Deficit to hit $897 billion this year, debt headed toward highest level since World War II: Budget Office – Washington Examiner

The Congressional Budget Office projected Monday that the federal deficit will rise to $897 billion in fiscal year 2019 and then will swell to over $1 trillion per year starting in three years.

Those projections represent an improvement over recent ones from the budget office, which is Congress’ official nonpartisan agency for budget and economic figures. The picture improved primarily because of a drop in emergency relief spending, which was outsized in 2017 because of several hurricanes and other natural disasters. Interest costs on the debt in 2018 were also lower than previously expected.

Nevertheless, annual deficits will send the federal debt, which represents accumulated deficits, to the highest level as a share of the economy since World War II, according to the projections released on Monday.

Deficits are rising in part because entitlement spending will increase as the population ages, as will the amount of interest the U.S. must pay on its already sizable debt, according to the nonpartisan office. Revenues from taxes are also down following the 2017 tax overhaul.

The CBO said that the just-concluded partial government shutdown will reduce economic output for the last two quarters by $11 billion. But it also concluded that the economy will largely bounce back from the overall drag caused by the shutdown, with much of the delayed activity showing up in the later quarters of 2019. In all, the lapse will permanently cut $3 billion from economic growth.

The budget office also expects the U.S. economy to grow by 2.3 percent in 2019. The tax cuts enacted by President Trump and congressional Republicans in 2017 will help businesses in 2019, but then have less of a stimulative effect in future years. The CBO expects economic growth to slow to an average of 1.7 percent per year from 2020 to 2023, barring major changes to law.

The CBO also projects revenues from taxes to remain below historic norms for the last 50 years following the tax cuts, which permanently cut corporate income taxes and temporarily cut individual rates. But according to the same projections, revenues will increase significantly over the course of the next decade, especially if those temporary tax cuts expire in 2025, which they will without a law that extends them further. Even if those tax rates rise as currently projected, CBO estimates the 2017 tax law will cost the federal government a total of $1.9 trillion over 10 years, after factoring in the positive effects of the law on the economy.

Monday’s 10-year projections do not include a recession, though the CBO’s experts acknowledge one is possible during that window. A downturn would increase the growth of debt significantly.