That there will be trillion dollar budget deficits almost every year of the Trump administration and beyond isn’t a secret.
Long before the Congressional Budget Office became the first federal agency to project them officially, many of us who follow this closely (here and here, for example) were saying that $1 trillion or higher annual budget deficits had become a real thing.
What doesn’t seem to have registered is that the Trump trillion dollar budget deficits are not short-term aberrations: They’re here to stay.
According to CBO, the deficit this year will be $804 billion and will rise to $981 billion next year and $1 trillion in 2020. CBO then projects that it will keep rising through the end of the 10-year projection window until it hits $1.5 trillion in fiscal 2028.
These projections are based on current law, which says that many of the tax cuts enacted in 2017 expire as the Tax Cuts and Jobs Act requires. If, as many expect, the law is changed so that none or only some of the provisions are allowed to expire, the revenue loss will be even greater and the deficits even larger.
CBO’s projections are also based on solid economic growth. Although CBO’s forecast is less rosy than what the Trump administration used in its budget, it still assumes that what is already the longest economic expansion in U.S. history will last another 10 years. Slower economic growth or a downturn will obviously increase the deficit even further.
As a result, CBO’s already-unprecedented projected trillion dollar-plus deficits should be considered as the best-case scenario. It’s actually more likely that the deficit will reach $1 trillion at least a year earlier in 2019, that is, next year.
Before the trolls come out to play…yes, there were four consecutive trillion dollar budget deficits (see table 1.1) during the Obama administration from 2009 to 2012. It reached the current all-time high of $1.4 trillion in fiscal 2009.
But the Obama trillion dollar deficits declined precipitously once the economy began to recover. From 2012 to 2013, the deficit fell from $1.2 trillion to $720 billion and stayed below the trillion dollar level every year thereafter.
By contrast, the Trump budget deficits are projected to hit $1 trillion and keep rising every year over the next 10 years.
But what’s most important is that, no matter what Office of Management and Budget Director Mick Mulvaney or any elected official may tell you, there’s not much that Congress and the White House will be willing to do about this.
Theoretically, of course, the deficit could be reduced or even eliminated entirely with legislated tax increases or spending reductions, or the U.S. economy could grow faster than expected and revenues could automatically flow into the Treasury while spending decreased.
But what could happen in theory for mostly political reasons isn’t at all likely in reality.
The existing national debt is going to be refinanced at higher interest rates in the months and years ahead so the interest payments will be rising. In addition, the new Trump trillion dollar deficits will add substantial additional debt to the government’s already significant borrowing so the legally untouchable interest payments will be even higher.
There’s no tax increase on the horizon. Period.
The trillion dollar deficits are already based on high economic growth.
In the current hyper-partisan environment, military spending is uncuttable.
That same hyper-partisan environment makes Social Security, Medicare and Medicaid almost as uncuttable.
The incontrovertible coming demographic changes mean that spending for Social Security, Medicare and Medicaid will increase under current law.
All of this means the estimated $724 billion in 2019 domestic appropriations (take a look at table 2.4 here) would have to be almost completely cut to substantially reduce the deficit. But at least half of that is nuts and bolts domestic programs (National Institute of Health, National Cancer Institute, federal jails, national parks, veterans, etc.) that are more likely to be increased rather than cut. Congress so far has shown little inclination to reduce much of the rest.
And this doesn’t even include Trump’s wall between the U.S. and Mexico, an infrastructure program or any other new proposal that could add billions more to the deficit each year.
That points directly to just one conclusion: Trump’s trillion dollar budget deficits are permanent changes in the United States’s fiscal future.