Trump’s Tax Overhaul Will Bring Federal Budget Deficit To a New Level

What will happen when the national budget deficit is 96% of the gross domestic product? Will the benefits of this tax overhaul counter the loss from tax cuts and rising interest rates?

In a report released on Monday by the nonpartisan Congressional Budget Office, it projected that the federal government’s annual budget deficit will reach over $1 trillion in 2020. The report also concluded that the national debt will rise to over $33 trillion in 2028 from its current level of $21 trillion. That figure will almost match the nation’s economy, covering 96% of the gross domestic product.

Experts in the past have stated that when the national debt exceeds a certain level there would be an economic crisis, and the level projected by 2028 will far exceed that threshold. Economists fear that the increasing deficits will lead to the increase in interest rates, making it more difficult and less affordable for the private sector to borrow money. This could lead to a significant blow on stock prices and slow economic growth, creating a negative cycle that will only worsen American economy.

The director of the budget office commented that “Such high and rising debt would have serious negative consequences for the budget and the nation,” further noting that “the likelihood of a fiscal crisis in the United States would increase.”

President Trump, since his inauguration in 2016, has put into place tremendous tax overhauls and intend to pour more funds into military and domestic spending. The figures included in this report is a good wake up call to examine the budget deficit of the government.

While the tax overhaul will size up the national economy by approximately 0.7 percent in the span of ten years, it will also add over $1.8 trillion to the existing deficits in the next decade. The lost tax revenue and soaring interest rates that will result from the tax overhaul will not be able to be compensated by the economic growth.

This estimation by experts does not match what the Republicans have promised, which was an over 3 percent of economic growth a year that would cover the loss of tax cuts. However, experts projected the actual calculated rate to be half of that promise and slow down throughout the years.

The Republican tax plan has received great oppositions and pushback from the Democrats. The democratic leader of New York, Chuck Schumer, has openly criticized the intentions of the Republicans: “the Republican agenda has always been the balloon the deficit in order to dole out massive tax breaks to the largest corporations and wealthiest Americans, and then use the deficit as an excuse to cut Social Security and Medicare.”

The Republicans responded with faith in the tax overhaul in helping economic growth. According to the budget office, the tax overhaul will indeed increase employment and add over 1.1 million jobs in the next decade. It will also bring a rise in average wages and salaries by almost 1 percent per year. This figure, though lower than promised when proposing the bill last year, is still a significant number.

However, it goes against President Trump’s vision to reduce the national trade deficit, as the tax overhaul will, in fact, do the opposite and increase the trade deficit by encouraging Americans to buy more imports at a cheaper price and sell fewer exports.

The report released by the budget office is also a good reminder to the administration about looking at the nation’s economy past the ten-year plan, as the budget office director commented that the national debt will most likely continue to rise and even go beyond the size of our national economy after 2028.