Donald Trump moves damaging U.S. economy, CBO concludes
The government shutdown President Trump orchestrated will sap $3 billion from the U.S. economy, his tariffs will take another bite, and the sugar high from his tax cuts will soon wear off, leaving a federal budget gasping for relief, the Congressional Budget Office said Monday.
The CBO’s latest report, its annual look at the budget over the next decade, offered grim news for the government’s fiscal picture, predicting trillion-dollar deficits beginning in 2022 and lasting the rest of the decade, with spending expected to soar, while revenue creeps up.
But the report also served as an early evaluation of the budget and economy during Mr. Trump’s first two years in office, and the budget analysts concluded some of his biggest moves have done damage.
In some cases the damage amounts to small dings, such as the tariffs, which if they remain in effect will siphon about a tenth of a percent off the gross domestic product, and the shutdown, which the CBO said cut GDP by $3 billion in the last quarter of 2018 and $8 billion this quarter.
“The shutdown dampened economic activity mainly because of the loss of furloughed federal workers’ contribution to GDP, the delay in federal spending on goods and services and the reduction in aggregate demand,” CBO Director Keith Hall said.
The bigger critique, though, came on tax cuts and the broader federal budget, where the CBO said Mr. Trump’s 2017 tax overhaul is not living up to the White House’s claim that it would pay for itself.
In reality, the early signs are that it will only replace about 30 percent of the lost revenue, Mr. Hall said. And he said while the tax cuts did boost economic growth and the economy is expanding faster than average right now, that’s going to sputter as the effects wear off.
“The growth effects are going to wane, that stimulus is going to drop off,” he said.
The White House, which had insisted the tax cuts fundamentally altered the economy, brushed aside the CBO’s conclusions, saying the congressional scorekeepers have always been too pessimistic about the president’s plans, and this is no different.
“All I am saying is that in the first two years of the Trump administration, our view has essentially been correct,” said Larry Kudlow, who heads the president’s National Economic Council.
He said the difference between the White House’s calculations and CBO’s numbers totals $3.5 trillion over the next decade about 30 percent of the deficits the government is poised to rack up over that time.
Mr. Kudlow also promised the administration’s next budget, which is due to be delivered to Capitol Hill soon, will try to control spending, including 5 percent in cuts to non-defense discretionary spending.
Those plans are unlikely to go very far on Capitol Hill, where the conversation among Democrats and Republicans is about how to spend more, not less.
And the CBO said that’s not the problem area of the federal budget anyway.
The new analysis Monday says the big drivers of trillion-dollar deficits and exploding debt are the aging population, with more people using Social Security and expensive health programs such as Medicare.
In one worrisome number, the CBO said Social Security, which for years has been a net contributor to the government’s finances through its massive trust fund, is now a net wash, and as of 2020 will begin to drain money from the general fund.
CBO analysts said the federal deficit, which was $779 billion in 2018, will total $897 billion in 2019, will reach the $1 trillion mark in 2022 and will top $1.3 trillion in 2029.
Debt the accumulation of those deficits is projected to soar, with the debt held by the public reaching 105 percent of GDP in 10 years and topping 150 percent of GDP by the middle of the century. That’s by far the highest level in history, even exceeding the World War II period.
Budget watchdogs said if anything, the numbers are too optimistic. The CBO made its calculations based on current law, which calls for a number of the Trump tax cuts to expire in the middle of the next decade. If that doesn’t happen, the budget will be even more out of whack.
“Numbers don’t lie, and anyone with a calculator on their phone can see that debt is a problem that can’t be ignored,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.
Mr. Hall, the CBO director, said high deficits aren’t unusual when the country is facing a recession or economic headwinds. But the massive deficits the government is piling up now come at a time of decent economic growth and very low unemployment.
He said that bodes poorly if the business cycle does begin to slip, and the government decides still more stimulus is needed.
The CBO’s conclusions on the shutdowen’s impact on the GDP prompted a round of “I told you so” comments from Democrats.
“What a devastating and pointless exercise this has been,” said Senate Minority Leader Charles E. Schumer, New York Democrat.
Mr. Kudlow, though, said that in a $20 trillion economy, figuring out a few billion dollars’ worth of economic effects was “awfully hard.”
“There’s certainly no permanent damage to the economy,” he said.
He said he is still predicting 3 percent GDP growth as the Trump administration trend line.
The CBO is less bullish, figuring real GDP growth will be 2.3 percent this year, drop to 1.7 percent next year and average less than 2 percent over the next decade.