The U.S. budget deficit is growing faster than expected, and President Trump’s trade war is weighing on the economy, according to a new Congressional Budget Office forecast that highlights key challenges as the 2020 elections approach.
The shortfall is set to widen to $1 trillion by fiscal year 2020, two years earlier than previously estimated, according to the nonpartisan group’s annual budget outlook, released Wednesday. That’s up from an estimated $960 billion in the year that ends Sept. 30. In January, the CBO predicted a gap of $890 billion next year and didn’t expect it to top $1 trillion until 2022.
Widening the nation’s budget gap is legislation that raised spending levels, though the effect will be somewhat moderated by the expectation of lower interest rates, which reduces the government’s debt-service burden. Trump has badgered the Federal Reserve to cut its policy rate, and market rates are low too.
It would be the first time the deficit exceeded the $1-trillion mark since 2012, as the economy was recovering from the financial crisis. That could give Democrats ammunition as Trump runs for reelection. Fiscal hawks say the rising wave of red ink also limits the federal government’s ability to provide stimulus in the event of an economic downturn.
The CBO’s report rebuts a claim by White House economic advisor Larry Kudlow that the deficit is “coming down, and it’s coming down rapidly.” Kudlow made the comments a year ago, and he has stuck to that message. Last month he said the deficit was “quite manageable” and not “a huge problem.”
He may have a point when the projected deficits are measured as a share of the economy. According to the CBO’s numbers, the deficit will be 4.6% of gross domestic product and stay under 5% of GDP through 2026. That’s about half the level it reached during the financial crisis a decade ago.
The bigger problem is government debt, which is forecast to rise as a share of the economy over the next decade, from 81% this year to 95% by 2029.
The U.S. budget deficit will expand faster than forecast after recent legislation raised spending levels, the Congressional Budget Office says.