The non-partisan Congressional budget office estimated that the US budget deficit is going to be $1.02 trillion in this fiscal year, which will end in October 2020.
This is quite a controversy because current president Trump has emphasized many times during his election campaign that he will make sure the national debt has decreased under his regime, and he has failed to keep his promises.
A budget deficit occurs when a government borrows or spends more than it earns. This last happened in 2012 when President Washington was trying to revive the economy during the Great Financial Crisis of 2009-2009.
But there seems to be no logical reason why the US should have such a high borrowing right now, as the economy is growing at a constant rate of 2.2%. Borrowing is likely to increase in the upcoming decade, and some economists fear that the budget deficit can stand up to $31 trillion in the year 2030.
Why Did It Happen?
President Trump blames the FED for raising interest rates drastically, but that is not entirely true as the interest rates in the US right now are one of the lowest known to history. Some economists blame bipartisan spending packing passed by the Congress in 2019, which increased the national debt about $500 billion.
Others blame the 2017 tax cuts, which reduced revenues. So it is hard to pinpoint the exact reason why such a steep increase took place.
Given the alarming stats, there are a few things the policymakers should keep in mind if they want to tackle the situation.
- The economy is expected to grow at a constant rate, so this can be used to create jobs and raise some revenues through income taxes.
- As both federal revenue and spending are projected to increase, the policymakers should keep that in check to make sure the reality isn’t as horrifying as the expectations, especially by 2030.
- As debt will be growing to record level, 98% of GDP by the year 2030, if proper policies are not implemented, this could stand up to 180% of the GDP in the year 2050.
The US government should be concerned about the growing national debt and take measures to prepare to handle any ruthless situation that may arise as side effects of such high borrowing.