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Long-Term Budget Outlook Synopsis

Please consider the Peterson Foundation Statement on CBO Long-Term Budget Outlook

“Today’s CBO report shows debt rising rapidly over the next three decades, and serves as a timely warning for this year’s tax policy debate. 

“Over the next 30 years, debt will grow to a staggering 156% of GDP.Annual interest costs will exceed $1 trillion next year, and total a stunning $76 trillion over the next three decades. This report also shows that the depletion of Social Security’s retirement fund is just 8 years away, which would result in immediate, automatic cuts for all beneficiaries.

“As bad as this outlook is, it represents an ‘optimistic’ scenario, because policymakers are currently considering adding trillions more in tax cut extensions, which would only add to these levels of debt. 

As CBO reported last week, extending the expiring provisions of the 2017 Tax Cuts and Jobs Act without offsets would double the deficit and send debt soaring to 214% of GDP. And if interest costs are one percentage point higher than expected, debt would balloon to 250% of GDP, showing just how sensitive our fiscal health is to the unpredictable interest rate landscape.

For the CBO report, and I highly recommend a look, please see Long-Term Budget Outlook 2025 to 2055.

2055 Economic Projections

• Debt held by the public: 156% of GDP
• Budget deficit: 7.3% of GDP
• Outlays: 26.6% of GDP
• Revenues: 19.3% of GDP

Other Projections

• Debt held by the public reaches 107% of GDP in 2029, exceeding the historical peak reached just after World War II.
• Deficits average 6.3% of GDP over the 30-year period, which is 2.5 percentage points more than they averaged over the past 50 years.
• Net outlays for interest increase more than one and a half times, reaching 5.4% of GDP in 2055. Outlays for the major health care programs climb to 8.1% of GDP in 2055.
• The growth of real GDP averaged 2.5% per year over the past 30 years. Over the next 30 years, real GDP growth averages 1.6% per year.
• Without immigration, the U.S. population would start to shrink in 2033. Slower growth of the population leads to slower growth in the labor force.

Snake Oil Analysis

Speaker of the House, Mike Johnson is leading the way for Trump’s snake oil magic. It’s a repeat play of the 2017 TCJA act.

In 2017, Republicans put a 7-year expiration on the TCJA. That way, they were able to avoid long term budget constraints.

Now the snake-oil salesmen now say they are not increasing the deficit, they are just continuing current policy.

How $4.5 Trillion Becomes Zero

Please consider Republican Lawmakers Eye Fiscal Policy ‘Gimmick’ to Finance Trump Tax Cuts

Due to the deficit impacts of extending the expiring tax cuts, Senate Republicans want to scrap “current law” baseline and instead use “current policy” baseline, which treats renewing the TCJA as an extension of current law rather than new policy.

This would make the House’s $4.5 trillion budget resolution, in theory, cost zero dollars rather than trillions.

After Trump endorsed the House version, Senate Majority Leader John Thune, R-S.D., said the Senate would keep its version as a “backup plan” while working with the House to make the $4.5 trillion resolution more doable.

The Congressional Budget Office, the Tax Foundation, and the Committee for a Responsible Federal Budget all agree the TCJA extension will decrease tax revenue for the federal government by at least $4.5 trillion from 2025 through 2034.

‘Optimistic’ Scenario

The Peterson Foundation correctly notes the snake oil and the optimistic nature of that snake oil.

Trump also wants no tax on tips, no tax on Social Security, more military spending, restoration of state-and-local tax (SALT) dedications, and a new iron dome defense shield. He recently proposed interest deductions for made-in-America autos.

Not a bit of that is factored into the CBO projections.

In 2017, elimination of SALT deductions was needed to make the 7-year projection work. Now, to buy House Democrat votes (primarily big blue tax states like NY), Trump proposes restoring SALT.

Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget

On March 12, I commented Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget

By “External Revenue Service” Commerce Secretary Howard Lutnick means tariffs.

Click on the above link for a video cheered on by Fox News, watched 317,000 times, and liked by 686 fools.

To balance the budget with tariffs, the administration would need to bring in $7 trillion. To replace individual and corporate income taxes, tariffs would need to bring in $3.1 trillion.

Tariffs brought in about $30 billion for the full year in 2024.

Reciprocal Tariffs

We have an annual trade deficit of $918 billion.

Team Trump proposes $918 billion in “reciprocal tariffs” to make the trade deficit go away.

But to balance the budget and eliminate personal income taxes, Trump would need to collect $7 trillion in tariffs on a net trade deficit of $918 billion.

Since that is impossible, we would need to faithfully collect 200 percent all tariffs on total imports ($3.3 trillion) with no trade frictions, no retaliations, and full compliance.

Are you ready for that miracle? Me too. But wait, there are still more benefits to this amazing deal.

Trumps Claims

1. Tariffs will increase revenue enough to balance the budget
2. Tariffs will bring manufacturing back to the US
3. Tariffs will reduce inflation
4. Tariffs will increase exports

Conflicting Economic Madness

Points 1 and 2 conflict. Tariffs cannot simultaneously bring back manufacturing and raise enough revenue to balance the budget.

Points 2 and 3 conflict. Since the US is the world’s highest cost producer of goods thanks to unions, tariffs will not reduce inflation.

Points 2 and 4 conflict. Since the US is the world’s highest cost producer of goods and other countries will retaliate, tariffs will not increase exports.

One House Republican Stands Alone

Only one House Republican, hard-line deficit-hawk rep. Thomas Massie, stood up against this budget nonsense.

“Why would I vote to continue the waste fraud and abuse DOGE has found?” wrote Massie on X. “We were told the CR in December would get us to March when we would fight. Here we are in March, punting again!”

I discussed the result in Hoot of the Day: House Republicans Suddenly Like Clean Energy Tax Breaks

Trump is one of the biggest snake oil salesman in history, and all but one Republican is too fearful to do anything about it.

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