An aide puts her hand on a copy of Volume 1 of U.S. President Donald Trump’s budget for Fiscal Year 2020 after it was delivered by the Office of Management and Budget (OMB) to the House Budget Committee room on Capitol Hill in Washington, March 11, 2019.
Kevin Lamarque | Reuters
Federal deficits are expected to swell to higher levels over the next decade than previously expected, the nonpartisan Congressional Budget Office said in a new report Wednesday.
The CBO also said that President Donald Trump’s tariffs are projected to shrink gross domestic product by 2020, and warned that further tariff hikes could stifle economic growth.
The U.S. budget deficit is expected to hit $960 billion in 2019, and average a whopping $1.2 trillion per year between 2020 and 2029, according to the CBO’s look-ahead at the U.S.’ budget and economic outlook over the next decade.
The new deficit projection for 2019 rose $63 billion from the last report, which came out in May. The CBO says this is mainly because of the massive new budget deal, which passed both houses of Congress and was signed into law by Trump on Aug. 2.
“The nation’s fiscal outlook is challenging,” CBO director Phillip Swagel said in the report. “Federal debt, which is already high by historical standards, is on an unsustainable course.”
Swagel said that the debt is projected to rise even higher after 2029, due to the aging of the U.S. population, growth in health care spending and rising interest costs.
“Lawmakers will have to make significant changes to tax and spending policies,” such as increasing revenues, reducing spending or a combination of both, Swagel said.
Here’s what else the CBO’s report says:
- Real GDP is projected to grow to 2.3% in 2019
- But after 2019, annual output growth is expected to slow down to an average of 1.8% through 2029 — lower than the long-term historical average
- “That slowdown occurs primarily because the labor force is expected to grow more slowly than it has in the past,” the CBO says
- Federal debt held by the public is projected to grow to 95% of GDP in 2029 from 79% in 2019. The 2029 debt projection will be “its highest level since just after World War II”
- The recently passed budget deal is expected to add roughly $1.7 trillion to the cumulative deficits between 2020 and 2029
- The expected increase in deficits is partly offset, however, by a $1.1 trillion net reduction in the CBO’s projections of interest costs over the following 10 years
- That’s mostly because CBO revised its forecast of interest rates downward from the prior report, which lowered its projections of net interest spending
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— CNBC’s Jacob Pramuk contributed to this report.