The non-partisan Congressional Budget Office (CBO) has run the numbers, finding, as expected, that the combination of a $1.5 trillion tax cuts and the $1.3 trillion spending bill will send the national debt soaring. How bad is it going to be? The CBO estimates that in 2028, ten years from now, the national debt will be 96% of the Gross Domestic Product.
Investopedia defines the Gross Domestic Product as “the monetary value of all the finished goods and services produced within a country’s borders in a specific time period.” The “GDP includes all private and public consumption, government outlays, investments, private inventories, paid-in construction costs and the foreign balance of trade (exports are added, imports are subtracted).”
National Debt is not the total of what everyone in the nation owes, with all of their mortgages, installment payments, and credit cards. It’s just what the government owes.
So, if I am understanding this correctly, in 10 years, the accumulated debt of the federal government will come within a hair of equalling the entire value of the entire nation’s economic activity. Put another way, if we agreed to pay off the national debt in 2018, it would take every penny you and every other American earned. The profits of Apple, Google, General Motors, and every other company; the year’s take in every pizza parlor and mom-and-pop business; the high-dollar investments on Wall Street; the cost of new homes and office buildings; our entire agricultural output in all of the fields of this vast land–all of this would be necessary to pay off what our government owes. With 4% change.Am I getting this right? I realize that the federal debt is different from personal debt, that it can’t be paid off in one year because it is in bonds that mature over different time spans, etc., etc. But still, the scale is staggering.
The CBO agrees that the tax cut will boost the economy, growing the economy by 3.3% this year, with an average of 0.7% growth and adding 1.1 million jobs over the next decade.
But the CBO also believes that the budget deficits will crowd out private investments, with such a vast amount of money going into Treasury Bills instead of into the private economy. This, in turn, will put a damper on the economy.
For these numbers, see Ylan Mui, The GOP tax plan means short-term gains for the economy, but federal debt is primed to explode, CBO analysis says, which concludes with the following statements:
“Such high and rising debt would have serious negative consequences for the budget and for the nation,” the CBO report stated.
Republicans have been fending off criticism from fiscal hawks for passing a $1.5 trillion tax cut late last year and following it up with a $1.3 trillion government spending deal with Democrats signed last month. The CBO estimates that annual deficits will reach $1 trillion in 2020, buttressing similar warnings from private forecasters.
“We now are facing trillion-dollar deficits as far as the eye can see — a terrible path, made even worse by the fact that this comes amidst a strong economy and is the self-inflicted result of irresponsible policy choices,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Hopefully it will serve as a wake-up call for our political leaders who have become frighteningly comfortable with deficit denial.”
Illustration by Tumisu via Pixabay, CC0, Creative Commons