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Home / US / CBO: Fiscal stimulus will increase budget deficits, increase growth in the coming years

CBO: Fiscal stimulus will increase budget deficits, increase growth in the coming years



The non-party WASHINGTON Congressman predicts greater budget deficits and slightly stronger economic growth in the coming years due to new laws designed to lower taxes and increase government spending.

The Congressional Budget Office said Monday that the federal budget deficit will surrender $ 804 billion this year and over $ 1 trillion per year from 2020, up from the $ 665 billion deficit in 2017 Public debt will reach $ 28,671 trillion or 96.2% of GDP by the end of 2028.

Economic growth will rise above 3% this year thanks to tax incentives, the CBO said, but the agency predicted acceleration will mostly be temporary. GDP growth will slow from 3.3% in the fourth quarter of 2018 compared to the previous year to 2.4% in 2019 and 1

.8% in 2020, thus coming closer to its moderate downstream trend.

The CBO's Annual Report on the Bund The budget and the US economy usually come out in January, but it was postponed this year, allowing analysts to consider the impact of some recent changes in fiscal policy.

December Congress approved a comprehensive package of corporate and individual tax cuts February approved a two-year budget agreement followed last month by a spending law that increased government spending this year, both nationally and militarily ,

The Monday's report provided early independent estimates of how these measures will affect federal finances and the economy as a whole in the coming years. The impartial CBO is headed by an economist

Keith Hall,

Who was appointed by Republican congressional leaders in 2015?

Proponents of tax legislation, including the president

Donald Trump,

said it would spur stronger economic growth. The Democrats rejected the bill and said it would not do enough to help the middle class and the wider economy.

Wall Street forecasters and other economists predicted that changes in tax laws would likely increase growth in the short term, but split over whether they would have significant long-term impact. The Joint Joint Staff Committee on Taxpayers estimated the tax cuts in December as stimulating the economy, but not as the main source of income.

When the CBO made forecasts in June, it expects the budget deficit to increase from 2.8% of GDP in 2018 to 5.2% of GDP in 2027. This would bring public debt to 78% of GDP in current year to 91.2% of GDP in 2027.

The Monday report, which takes into account bills that both reduce taxes and increase spending, has seen the CBO increase the short-term deficit. It is expected that the deficit will increase from 4% of GDP in 2018 to 5.4% of GDP in 2022 and then decrease to 5.1% of GDP in 2028. Public debt will rise from 78% of GDP in 2018 to 94.5% GDP in 2027 and 96.2% in 2028.

Federal revenue for 2019-2028 is expected to be 17.5% of GDP, compared with the estimate of 18.2% of GDP last summer 2018-2027. Expenditure is expected to be 22.4% of GDP in 2019-2028, unchanged from the estimate for the period 2018-2027 from last summer.

It is unusual that the federal budget deficit grows significantly outside of wars or recessions. But even before the recent economic surge, the CBO expected the deficits to increase in the coming years, as revenues failed to keep pace with spending, including spending on key social programs such as Social Security and Medicare.

The estimates of the CBO assume no further changes in US law. But the agency said that if some expiring provisions of the tax law were not planned in the coming years, along with other changes that would expand current policies, the deficit would be higher and public debt would reach about 105% of that GDP by the end of 2028.

"Moreover, the pressure that would contribute to this increase would accelerate and fuel debt even further in the decades to come," the agency said.

Changes could also go in the opposite direction. Hoping to cut federal spending, White House officials are working on a proposal for "resocialization" or cuts they will make to $ 1.3 trillion last month's spending bill. Mr. Trump can submit his proposal to Capitol Hill, where laws that cancel this money will be taken into account through an accelerated process, though Congress does not have to respond.

It is not yet clear if a resignation bill could pass the Senate Although the majority of bills require only a simple majority instead of the 60 votes, procedural hurdles must be overcome. The $ 1.3 trillion spending bill promotes both military and national funding and was the result of cross-party negotiations between the four leading congressional leaders.

Fitch Ratings confirmed its top rating for US Treasury last week, even though the outlook for public finances deteriorated.

"While fiscal policy has been loosening lately, Fitch considers debt tolerance higher than other countries," said the rating agency. "However, rising deficits and debt could eventually erode those credit levels if there were no reforms."

The economy should benefit from higher government spending and lower taxes, especially in the short term.

The CBO projected GDP growth of 3.3% in the fourth quarter of 2018 compared to the previous year's estimate of 2.0% in June 2017. Annual growth would slow down in the following years: 2.4% per annum 2019, 1.8% in 2020, 1.5% in 2021 and 2022, and 1.7% in the period from 2023 to 2028.

The underlying trends are expected to outperform earlier growth and remain well below the previous growth rate The goal of the Trump government to achieve sustainable growth of at least 3%.

The CBO estimated potential GDP growth in 2018-2028 on average at 1.9% per year, based on expected labor growth and labor productivity. Growth of 1.8% over the 2017-2027 period has increased slightly compared to last summer's estimates. Potential GDP growth is the maximum growth rate consistent with stable inflation.

This is broadly in line with recent Federal Reserve officials' predictions. March's medium-term projection of monetary policy makers saw long-term GDP growth of 1.8% per annum, with individual estimates ranging between 1.7% and 2.2%.

Elements of the new tax code should "encourage investment that should help productivity encourage labor market participation," Federal Reserve Chairman

Jerome Powell

told reporters last month. "We do not know what the impact will be, we do not know what the time will be."

Letter to Ben Leubsdorf at ben.leubsdorf@wsj.com


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