The GOP’s law to overhaul the U.S. tax code, signed by President Donald Trump in December, will cause the economy to grow faster than previously estimated, but at the expense of the federal deficit.
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The Congressional Budget Office (CBO) released its budget outlook for the coming decade on Monday, raising its estimates for GDP growth in 2018 and 2019 to 3.3% and 2.4%, respectively. Growth will be primarily driven by business investment, consumer spending and federal spending.
However, the nonpartisan group also upwardly revised the tax bill’s projected impact on the federal deficit, saying it will cause the deficit to expand at a faster pace because the government will collect less revenue.
The CBO upwardly revised its cumulative deficit forecast over the next decade by $1.6 trillion, to $11.7 trillion. It also raised its deficit forecast for the current year by $242 billion, to $804 billion.
The federal debt held by the public will rise to nearly 100% of GDP by 2028, an amount “far greater than the debt in any year since just after World War II,” the CBO said.
Lowering the individual tax rates, and therefore the federal revenues collected from individuals, was a centerpiece of the Republican plan. The law also lowers the corporate tax rate by 14 percentage points with the aim of attracting more business investment, increasing productivity and thereby boosting economic growth.