New analysis released today from the nonpartisan Congressional Budget Office (CBO) shows deficits doubling and debt skyrocketing under a scenario where the expiring provisions of the Tax Cuts and Jobs Act (TCJA) were made permanent. If interest rates were also higher than projected, a second scenario shows that the United States would incur even worse fiscal damage.
CBO finds that:
- If provisions of the TCJA were made permanent (and there were no other changes to fiscal policy), debt held by the public (DHBP) would reach 214 percent of gross domestic product (GDP) in 2054 — 47 percentage points higher than under the baseline scenario in which the provisions expire as scheduled and well above the level in 2024 of 98 percent of GDP.
- Making those provisions permanent would lead to a near-doubling of the annual deficit relative to GDP — from 6.3 percent this year to 12.3 percent in 2054.
- In addition, if interest rates also increased each year until they were higher than projected by 1 percentage point, DHBP would exceed 250 percent of GDP within 30 years. Macroeconomic feedback effects would further increase interest rates and, therefore, lead to even worse fiscal outcomes. Such findings demonstrate the sensitivity of the nation’s finances to borrowing costs.
As lawmakers consider the expiring tax provisions this year, they should keep in mind the effects on the nation’s unsustainable debt, and follow guiding principles for fiscally responsible tax policy.
Further Reading
House Reconciliation Bill Would Increase the National Debt by More Than Any Other Recent Legislation
The House recently passed the largest reconciliation bill ever. CBO estimates it would add $2.4 trillion (excluding interest) to the national debt over 10 years.
United States Is Borrowing at a Higher Rate than the Global Average, Warns IMF
New IMF reports serve as a warning to all countries that global fiscal and economic conditions are veering into dangerous territory.
News from the Quarterly Treasury Refunding Statement
As borrowing has risen, the Treasury has generally been increasing the proportion of bills (maturity of one year or less) in its portfolio of marketable securities.