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Federal Debt Projected to Grow by Nearly $10 Trillion Over Next Decade
After seven years of fitful declines, the federal budget deficit is projected to swell again, adding nearly $10 trillion to the federal debt over the next 10 years, according to projections from the nonpartisan Congressional Budget Office. The numbers reveal the strain that government debt could have on the economy as President Trump presses to slash taxes and ramp up spending.
The deficit figures released Tuesday will be a major challenge to House Republicans, who were swept to power in 2010 on fears of a bloated deficit and who made controlling red ink a major part of their agenda under former President Barack Obama.
Statutory caps imposed in 2011 on domestic and military spending have helped temper the deficit. But those controls are likely to be swamped by health care and Social Security spending that will rise with an aging population.
Now, congressional leaders will have to choose between their fealty to the cause of fiscal prudence and the demands of the new president, who wants $1 trillion in infrastructure work over 10 years, a surge in military spending and large tax cuts for individuals and corporations.
At a confirmation hearing on Tuesday, senators from both parties peppered Representative Mick Mulvaney of South Carolina, Mr. Trump's choice to be the White House budget director, with questions about how Mr. Trump intended to keep his promise to protect Social Security and Medicare while addressing the budget shortfall.
Mr. Mulvaney said that it would be his role to deliver hard truths to Mr. Trump. One of those truths, he suggested, could be the need to raise the eligibility age for Social Security, a proposal that is sure to be contentious.
"I haven't been quiet and shy since I've been here," Mr. Mulvaney said. "I have to imagine the president knew what he was getting when he asked me to fill this role. I'd like to think it's why he hired me."
He added, "I believe, as a matter of principle, that the debt is a problem that must be addressed sooner rather than later."
The deficit is expected to shrink this fiscal year and next before increasing in 2019 and beyond. Deficits would cumulatively total $9.4 trillion from 2018 to 2027, the budget office projects. By 2023, the deficit would reach $1 trillion, and in 2027, a projected $1.4 trillion deficit would be equal to 5 percent of the economy.
Most economists believe that deficits are helpful when economies are in recession, but some say that when they are near full employment, as the United States economy is now, deficits should be kept below 3 percent of the economy to avoid a drag on investment – or worse, a financial crisis.
The Congressional Budget Office's budget and economic outlook said that the share of debt held by the public was expected to reach 89 percent of gross domestic product in 2027. That level could increase the risk of a financial crisis and raise the possibility that investors will become skittish about financing the government's borrowing, some economists say, although many countries have far higher debt levels.
After the release of the report, the Republican Study Committee, the main organization for House conservatives, signaled that it would not ignore that rising red ink to accommodate Mr. Trump's spending ambitions.
"Without changes to the federal budget, we are on a path to fiscal crisis with spending, deficits and debt continuing to balloon out of control," said Representative Mark Walker of North Carolina, the chairman of the group.
Besides the deficit, tepid economic growth is also a concern. Over the next 10 years, real economic output is projected to grow at an annual rate of 1.9 percent.
Mr. Trump has promised that his combination of tax cuts and investment in infrastructure will push growth above 4 percent, and Mr. Mulvaney argued on Tuesday that spurring growth was the most effective way of reducing the debt without imposing painful cuts to social safety-net programs.
Some senators such as Angus King, independent of Maine, warned against a return to much-debated theories that tax cuts would generate enough growth to pay for themselves and reduce the deficit.
Democrats are likely to oppose large tax cuts, but they will press Mr. Trump to make good on his promise to spend big on infrastructure. Senate Democrats on Tuesday unveiled a $1 trillion plan to rebuild the nation's roads, bridges, rails, transit systems, airports, sewer systems and power grid. "We will not cut middle-class programs like education and health care to pay for it," said Senator Chuck Schumer of New York, the Democratic leader.
When it was pointed out that he was proposing the kind of deficit spending that Republicans were sure to balk at, Mr. Schumer was dismissive.
"We Democrats believe that this should be a measure to get the economy going," he said.
Republicans are pressing their own spending priorities, urging passage of legislation that would lift statutory spending caps on national defense, imposed by the Budget Control Act of 2011, while leaving in place the caps on domestic spending.
In one of the testier exchanges of Mr. Mulvaney's two confirmation hearings on Tuesday, Senator John McCain, Republican of Arizona, actually pressed the nominee to accept more military spending, castigating him for struggling to remember his House votes to cut military budgets.
"Boy, I'll tell you, I would remember if I voted to cut our defenses the way you did, Congressman," Mr. McCain said. "Maybe you don't take it with the seriousness that it deserves."
Like many of Mr. Trump's picks, Mr. Mulvaney has taken positions that contradict Mr. Trump, and it remained unclear how that dynamic would play out in the White House if he is confirmed.
Senator Bernie Sanders of Vermont, the former Democratic presidential candidate, said that Mr. Mulvaney's views on the deficit, Social Security, Medicare and Medicaid were out of sync with Mr. Trump's campaign promises to protect the programs. He said he feared that Mr. Mulvaney would pull the president to the right.
"It does not make sense to me to have a key adviser to the president having views directly in opposition to what the president campaigned on," Mr. Sanders said.
Despite the concern about a growing deficit, the tenor of Mr. Mulvaney's nomination hearings did not reflect the sense of anxiety that was palpable when Mr. Obama was assembling his economic team during the financial crisis eight years ago. The economy, now growing steadily, appears to be giving policy makers time.
The Congressional Budget Office report said the economy was on "solid ground," with increasing output and job growth on the horizon, a sharp contrast to the "carnage" detailed by Mr. Trump in his inaugural address.
[Source: By Alan Rappeport, The New York Times, Washington, 24Jan17]
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