Business

Tax, spending laws will add $2.4 trillion to debt: watchdog

by Niv Elis - 03/02/18 10:25 AM ET

The GOP’s signature tax-reform legislation and a bipartisan deal to increase spending will add around $2.4 trillion to the national debt over the next decade, according to a study by the Committee for a Responsible Federal Budget.

The GOP tax law would reduce revenues to their lowest, non-recession levels in 50 years, while the spending deal would rise to its second-highest level since World War II, the budget watchdog group said.

If Congress chooses to renew certain policies that are set to expire, the study found, the debt would grow $3.6 trillion by 2028.

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“We expect deficits to rise from last year’s $665 billion to more than $1.1 trillion in fiscal year 2019 and to $1.7 trillion by 2028,” the paper said.

Those annual deficits would bring the nation’s debt-to-gross domestic product ratio to 101 percent by 2028. As of last year, it was expected to hit 93 percent of GDP in that time frame.

Having large annual deficits that pile onto the national debt can hobble an economy in the long-run. As more debt comes due each year, a government has to muster resources and tax revenues to pay the debt. In some cases, markets begin to doubt that the government will be able to pay its debts, which increases the costs of borrowing. High debt levels can also crowd out private investment, as investors choose high-yield government bonds over private ones.

“Rising debt and interest rates means that interest costs will be the fastest growing part of the budget,” the paper said. Current laws, it found, would grow interest costs from $263 billion, or 1.4 percent of GDP last year, to $965 billion, 3.3 percent of GDP, by the end of the decade. That would amount to 14 percent of budgetary spending.