WASHINGTON (AP) – A government report released Monday says that the U.S. budget deficit is set to hit $897 billion this year and predicts that economic growth will slow as the effects of President Donald Trump’s tax cut on business investment begin to drop off.
The new Congressional Budget Office Report predicts a $118 billion increase over last year’s $779 billion deficit. It predicts that the economy will grow by 2.3 percent this year, a slowdown from 3.1 percent last year.
The CBO credits the 2017 tax bill – which cut corporate and individual income taxes by $1.9 trillion over a decade – with a burst in growth last year, but it says that this year “the boost that recent tax legislation gave to business wanes.”
The report comes as the government is reopening after a 35-day partial shutdown. The CBO says the shutdown will have a modest negative impact on the economy, lowering projections of economic growth by 0.4 percent to 2.1 percent in the first quarter, though the economy is expected to mostly make up for it over the rest of the year.
“The shutdown dampened economic activity mainly because of the loss of furloughed federal workers’ contribution to (gross domestic product), the delay in federal spending on goods and services, and the reduction in aggregate demand,” the report said.
The report lands in a divided Washington, where neither Trump nor Democrats controlling the House are expected to make curbing the deficit a priority. In fact, Trump and lawmakers are likely to increase spending for the Pentagon and other federal agencies, which would otherwise face cuts from outdated budget caps that are the remnant of the 2011 budget deal. And Congress is ultimately going to face pressure to make permanent provisions of the 2017 tax cuts for individuals that would otherwise expire in 2025.
The agency also predicts that Trump’s trade policies – higher tariffs on Chinese goods and products such as imported steel – would have only a relatively modest negative impact on the economy.