U.S. fiscal issues loom: How larger deficits can hurt the economy

According to the most recent Congressional Budget Office (CBO) projection, the federal budget deficit for fiscal year 2018 (which ends on September 30) will reach $793 billion, or 3.9% of gross domestic product (GDP). This figure is $230 billion more than the CBO had previously estimated in June 2017, largely because legislation enacted since then has reduced potential revenues and increased anticipated spending. The government runs a deficit when it spends more money over the year than it collects in tax revenue. To cover the difference, the government must borrow money from investors through the sale of Treasury bonds. Annual budget deficits add to the national debt, which already exceeds $21 trillion. As things stand, the budget shortfalls are not projected to end any time soon. In fact, the federal deficit is projected to increase substantially over the next several decades, reaching 9.5% of GDP by 2048. Here’s a closer look at the nation’s current fiscal situation and what it could mean for future economic growth. Lower taxes, higher spending The Tax Cuts and Jobs Act, which took effect in January 2018, included permanent rate reductions for corporations and temporary ones for individuals. The CBO projects that this tax law