The Congressional Budget Office’s long-term outlook was released and finds that the budget deficit and the federal debt will continue to rise. Though many are blaming this on recent passage of tax reform legislation, CBO projects tax revenues to rise every year. Expenditures, however, continue to rise at unsustainable rates.
As the CBO projects,
For the next few years, revenues hover near their 2018 level of 16.6 percent of GDP in CBO’s projections. Then they rise steadily, reaching 17.5 percent of GDP by 2025. At the end of that year, many provisions of the 2017 tax act expire, causing receipts to rise sharply—to 18.1 percent of GDP in 2026 and 18.5 percent in 2027 and 2028.
The problem is that spending will increase at a much more rapid pace than tax revenues are projected to. The unsustainable path is due to “mandatory spending” - the CBO term for entitlement programs like Social Security and Medicare that already eat up so much of the federal budget and are projected to rise higher and higher. The problem is exacerbated by increased interest payments on the national debt - which becomes more and more of a problem as the debt continues to grow.
CBO’s analysis supports the conclusion that the Tax Cuts and Jobs Act is going to significantly grow the economy. The agency sees significant boosts to gross domestic product immediately, but those effects will begin to fade starting in 2025, as some of the temporary provisions of the TCJA are set to expire. The obvious solution is to make those temporary provisions permanent, reducing uncertainty for American taxpayers and ensuring that they’ll see a stable tax environment moving forward.
As NTUF policy analyst Andrew Wilford found in a recent study, the TCJA’s effects on the debt are modest. Under prior CBO assumptions, the national debt would have been 111% of GDP in 2027 without the TCJA, and 114% of GDP after passage of the TCJA. CBO finds that the tax bill boosts the economy, increases employment and puts money back in the pockets of American taxpayer. While it has some impact on deficits, the bulk of the problem is due to decades of out-of-control spending.