Trump budget plan could add $6tn to public debt in a decade, analysts say

Mar, 01/24/2017 - 12:51 -- anegrete

Donald Trump’s tax-cutting and spending plans could add another $6tn to the US public debt over the next 10 years, independent budget analysts have calculated, as the Congressional Budget Office warned the US’s current spending plans alone could trigger a financial crisis.

The CBO released its latest assessment of the US budget and economic outlook on Tuesday. The CBO reported that Trump would inherit a $559bn deficit for 2017 and still-sluggish economy that will, on its current course, add another $10tn to the public debt over the next decade.

Trump’s campaign promises of major tax cuts and a vast infrastructure investment would add $6tn to that debt, according to independent analysis by the nonpartisan thinktank Committee for a Responsible Federal Budget.

“My hope is that when Trump and his administration see how high our debt is that it gives them a little pause before they start to pursue huge tax cuts and infrastructure spending,” said Marc Goldwein, policy director of the Committee for a Responsible Federal Budget.

The CBO report projects that the US’s gross debt will grow from almost $20tn to $30tn by the end of 2027. Debt held by the public is expected to grow from about $14tn to almost $25tn. The major drivers for the debt are the growing cost of looking after the US’s ageing population and expected rises in interest rates.

“This is not a problem of runaway defense spending or runaway welfare programmes. It’s a problem of the rising cost of major entitlements that mainly go to the elderly and rising interest rates which are returning to more normal levels,” said Goldwein.

Unless something changes, within three decades the debt will double when measured against the size of the economy’s gross domestic product (GDP), the broadest measure of a nation’s economic health, reaching a level never seen in US history, the CBO said.

“Three decades from now, for instance, debt held by the public is projected to be nearly twice as high, relative to GDP, as it is this year – and a higher percentage than any previously recorded,” the CBO reported. “Such high and rising debt would have serious negative consequences for the budget and the nation.”

A debt of that size would lead to lower productivity and wages, and hamper lawmakers’ ability to use tax and spending policies to respond to unexpected challenges.

“The likelihood of a fiscal crisis in the United States would increase. There would be a greater risk that investors would become unwilling to finance the government’s borrowing unless they were compensated with very high interest rates; if that happened, interest rates on federal debt would rise suddenly and sharply,” the CBO warned.

Trump campaigned on a promise to cut public and business tax rates and in his first two days in office he has doubled down on those pledges, meeting with a series of CEOs to reaffirm his tax cutting commitments. On Tuesday, Democrats unveiled a $1trn infrastructure plan that they hope will win Trump’s backing.

Goldwein said he was hopeful that the CBO report might lead Trump to rethink his plans. “We saw this with President Clinton, who ran on middle class tax cuts but when he got into office he saw how bad the budget situation was and passed a major deficit reduction bill,” he said.

“Tax cuts need to be paid for, infrastructure needs to be paid for and we need to find a way to deal with the growth of our major entitlement programs, social security and Medicare,” he said.

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Crisis económica