CBO: Tax Cuts, Spending Driving Debt to Historic Levels

Revenues are projected to remain near 16.6% of GDP for the next few years, then rise steadily to reach 17.5% by 2025. When some provisions of the tax act expire afterward, revenues are projected to top 18% from 2026 to 2028.

The CBO notes that the revenue growth in later years could decline if lawmakers decide to prevent a "significant increase in individual income taxes in 2026" and reverse funding declines for defense and nondefense discretionary programs in 2020, which would result in "even larger increases in debt."

Offsetting the rise in revenue, however, is a projected increase in outlays. They're expected to remain near 21% of GDP over the next three years, then grow more quickly, topping 23% of GDP by 2028.

"That increase reflects significant growth in mandatory spending — mainly because the aging of the population and rising health care costs per beneficiary are projected to increase spending for Social Security and Medicare, among other programs. It also reflects significant growth in interest costs, which are projected to grow more quickly than any other major component of the budget [as] the result of rising interest rates and mounting debt."

Net outlays for interest paid on federal debt are projected to roughly triple what they are this year in nominal terms and roughly double as a percentage of GDP, according to the CBO.

The agency notes that its projections, especially those for economic growth, however, are "more uncertain than usual this year because they incorporate estimates of the economic effects of the recent changes in fiscal policy," which are themselves uncertain.

Former Fed Chair Janet Yellen, along with four other former chairs of the White House Council of Economic Advisers, write in today's Washington Post that the U.S. deficit will be rising in the coming years primarily because of the tax cuts passed last year, not because spending, especially for entitlements, has increased.

"The tax cuts passed last year actually added an amount to America's long-run fiscal challenge that is roughly the same size as the pre-existing shortfalls in Social Security and Medicare."

Those cuts made when "the economy was already at or close to full employment … turned economic logic on its head [and] this year's bipartisan spending agreement contributed further to the ill-timed stimulus," the authors write.

They argue against reducing the deficit by slashing entitlement programs because those programs are popular and their costs are growing "not because of increased generosity of benefits but because of the aging of the population and the increase in economy-wide health costs."