Deficit could hit $1 trillion in 2018, and that's before the full impact of tax cuts

Show Caption Hide Caption President Trump claimed tax reform 'essentially repeals' Obamacare President Donald Trump on Wednesday reveled in Congress’ passage of a massive $1.5 trillion tax reform bill, claiming that, once he signed it into law, it would propel economic growth.

2018 could be the year the dam bursts on the federal deficit.

Back in June, the Congressional Budget Office projected that the budget deficit — government expenses exceeding revenues — would drop to $563 billion in 2018 from the $666 billion shortfall the Treasury Department declared in the 2017 fiscal year, which ended Sept. 30.

Now budget experts outside government say the 2018 total could exceed $1 trillion because of series of bills being passed in quick succession, and decisions to scrap what were already weak limits on spending.

The tax package Congress sent to President Trump will cut government revenues by $135 billion in 2018, a figure that rises to $280 billion in 2019, according to the Joint Committee on Taxation.

On top of that, Congress approved emergency disaster aid bills totaling $15 billion in September, $36.5 billion in October, and this week is arguing over adding another $81 billion to address California wildfires and Hurricanes Harvey, Irma and Maria. Barring any last minute decision to pay for it, that spending will be added to the 2018 deficit.

Finally, CBO’s original estimate that the deficit would go down assumed the adoption of President Trump’s budget proposal, a plan released in March that slashed spending so deeply it was quickly panned by his fellow Republicans in Congress.

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Spending levels for 2018 will not be settled until January, but ongoing negotiations in Congress are focused on how much to blow past caps on domestic and defense spending, not on how much to cut.

“If you add that the economy is just not going to explode positively, then it could easily be more than $1 trillion, and that assumes nothing bad happens for the rest of the year that costs more than we’re expecting,” said Stan Collender, a former staff director for the House and Senate budget committees and author of The Guide to the Federal Budget.

Collender also said that interest rates would rise as a result of the tax bill, making it more expensive to pay interest on the existing federal debt of nearly $15 trillion. The federal debt is an accumulation of the annual deficits run up by the government.

Budgetary “pay as you go” laws designed to keep spending in check require that when Congress passes bills that increase the deficit, automatic cuts are triggered in both discretionary and mandatory programs such as Medicare. Democrats have argued for weeks that the tax bill would force cuts in January that zero out many programs and trim $25 billion from Medicare.

Those pay-as-you-go mandates can be waived by passing another law, and that is what Republican leaders in Congress are talking about doing. They mock Democrats’ complaints about the deficit as feigned, noting the deficit topped $1 trillion for several years when Democrat Barack Obama was president.

But deficit hawks say that with the economy growing and unemployment down to 4.1%, this is the time the government should be more fiscally responsible.

"When we had trillion-dollar deficits the last time, it was the result of one of the worst economic downturns we’ve seen in history. This will be completely self-inflicted," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “When the economy recovered, the deficits came down, not by enough, but this is the result purely of policies, not of a recession.

“Nobody is talking about paying for anything anymore,” she said.

The government will announce the final deficit number in mid October, a few weeks before the mid-term 2018 elections.

Trump has brushed aside worries about the deficit, pointing to corporations that have overseas assets that he believes will be repatriated and used to expand and grow businesses in the U.S.

"It's probably over $4 trillion," Trump said on Saturday. "This is money that's been stuck there for years, and it's going to come pouring back into the county." But the U.S. Treasury will only collect a small portion of that money in taxes.

The Trump administration and many of the tax bill’s supporters also argue the CBO assumed a 1.9% average economic growth rate over the coming decade that is too low.

“If the growth is … instead a little higher, 2.3% growth over the next 10 years … then you will see some deficit reduction,” Sen. Rob Portman, R-Ohio, told reporters Wednesday. “It would instead lead to being able to pay down the debt.”

Sen. Bob Corker, R-Tenn., initially opposed the tax bill because of concerns about increasing the national debt. He ultimately voted for it, saying he believed on balance that changes to the corporate tax rate would make the United States more attractive for multinational corporations, and that opportunity "should not be missed."

Corker also adopted an argument by Trump's Treasury Department that the tax bill would combine with the effect of reduced regulations and changes to trade and immigration policy that spur the economy.

The danger, MacGuineas said, is if they are wrong and the economy tanks again in the future. A bigger national debt will leave the government with less "fiscal firepower" to respond the way it did in 2008, she said.

"What I wish was happening is that fiscally responsible people would say, 'Instead of waiving the rules requiring mandatory cuts, let's replace them with responsible budget cuts or repealing part of the tax cut,'" she said. "Where we are in the business cycle, we should be seeing the deficit shrinking."

Deirdre Shesgreen contributed.