Trump tax cut’s big price tag: Huge debt

WASHINGTON - The tax cuts championed by President Donald Trump are helping push the nation toward an unprecedented level of debt, heightening the risk of another financial crisis, according to the nonpartisan Congressional Budget Office.

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 percent 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," budget office Director Keith Hall said.

The federal debt currently stands at about $15 trillion, or 78 percent of the size of U.S. economy. If current trends continue, it will roughly equal the size of the economy within a decade, the budget office said. The last time the debt burden hit that level was just after World War II.

The biggest problem in the coming decade stems from last year's tax cut. It is estimated to increase the deficit by more than $2.3 trillion over the 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 increase 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.

The budget office did not offer a specific projection of the more pessimistic scenario, but the bipartisan Committee for a Responsible Federal Budget, an advocacy group, crunched the numbers and found that if the individual cuts were kept in place, federal debt would be twice the size of the nation's economy, and annual deficits would exceed 13 percent of the GDP over the next 30 years.

The impact of the tax cut comes on top of a pre-existing problem - the spiraling price of providing subsidized health care and Social Security for the huge baby-boom generation as it moves into retirement, the budget office said.

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.

What makes the rapidly increasing debt particularly striking is that it's happening at a time when the U.S. is at peace and the economy is booming. The previous high point for the debt came when the nation was deep in the red from the effort to win the World War II and the public works projects implemented in response to the Depression.

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Credit: By Evan Halper - Washington Bureau - [email protected]

Caption: President Donald Trump has touted tax cuts as a boon to the economy, but the CBO says cuts increase the risk of a fiscal crisis and weakens the ability to respond.

Olivier Douliery/TNS