In a report issued Tuesday, the nonpartisan Congressional Budget Office warned that President Donald Trump’s tax cuts are creating a perilous economic situation, pushing the U.S. toward unprecedented levels of debt and elevating the risk of another financial crisis.
The budget office’s annual look at the government’s long-term financial outlook paints a grim picture, projecting soaring deficits in the coming years, with debt ultimately peaking at more than 152% of the nation’s gross domestic product.
“The prospect of large and growing debt poses substantial risks for the nation and presents policy makers with significant challenges,” Keith Hall, director of the budget office, said in a statement.
The CBO said the national debt, which is currently about $15 trillion and is equal to approximately 78 percent of the economy, will likely stand equal with the size of the economy within the next ten years.
Trump’s tax cuts are projected to increase the deficit by $2.3 trillion in the coming decade.
And that’s under an optimistic scenario. Under the tax law, individual income tax rates are slated to increase sharply at the end of the decade, while corporate taxes remain low. If Congress allows that individual tax hike to take effect, the tax cut’s long-term impact on the debt will begin to fade after the next 10 years.
But if Congress balks at that big tax increase — many members of Congress already have said they want to make the individual cuts permanent — the red ink would be even worse than projected, the budget office said.
All of this is compounding issues already at play, such as the aging baby boomers coming into retirement, according to the CBO.
What are some of the biggest problems we face should the situation continue unabated?
Debt at the level the U.S. is currently piling up could have serious consequences, the budget office warns. The high level of red ink increases the likelihood of a fiscal crisis, threatens to reduce the income of average Americans, and gives lawmakers limited options to deal with big events that require a government response, such as another deep recession.
Rising debt also threatens to weaken the global power of the United States as it increasingly depends on foreign investors to lend money to the Treasury, the report noted.