Last December, Congress was required to pass a new budget and increase the debt ceiling or face the threat of another government shutdown. This will be the 75th time in the last 55 years that Congress has sat down, realized it’s massively in debt, and, in order to solve the problem, decided to spend more money. The proper course is clear; we either need to end the legislation requiring the expansion of the debt ceiling, or commit ourselves to fiscal restraint.
There is some good news. In the 2017 fiscal year, the deficit has only been about $650 billion, which is less than half of the average deficit under the Obama administration. One might be mistaken for thinking that we are on the right path with deficit reduction, but a tax cut is coming. The current Congressional Budget Office (CBO) estimates with President Trump’s tax cut passed, we could see $1.7 trillion added to the deficit in the next 10 years.
That being said, the CBO itself has not always been the best predictor of future economic forecasts. During the Obama administration, the CBO underestimated the forecasted cost of Medicaid expansion, claiming it was going to be almost 40 percent LESS expensive than it actually turned out to be. At the same time, the CBO overestimated the amount of real GDP growth under President Obama by over 50 percent between 2010 and 2016. For these reasons, some accuse the CBO of being a left-leaning organization that would be likely to overestimate the true cost of Trump’s tax cuts.
The added economic growth from the tax cut could be enough to pay for the loss in revenue… according to some. The GDP growth from the last quarter alone was 3.7 percent and continues to increase. This is already much higher than even peak growth during the Obama years (whether President Trump’s policies account for that growth is a different story).
Based on the recent tax cut, the estimated GDP growth caused by it would be 0.7 to 0.8 percent. This would mean adding $1.7 trillion to $1.9 trillion to the GDP over the next decade, which might “pay for” the tax cut. Regardless, only time will tell if the government budget ends up in the black.
The bottom line is future generations will inherit a $20 trillion and growing debt. The debt ceiling was meant to help check reckless spending, but since Congress always votes to increase the limit, the entire process is merely political theatre. A debt of this size cannot be sustained and will have negative impacts for all in the long run. Congress either needs to end the debt ceiling process or commit to reducing federal spending.