Arthur J. Villasanta – Fourth Estate Contributor
Washington, DC, United States (4E) – The federal government’s massive accumulation of debt exacerbated by a massive drop in corporate income taxes, Trump’s tax cuts and the strong U.S. dollar are now the most dangerous problems confronting the Trump administration.
Experts said the escalating debt levels are pushing borrowing costs higher. To head-off further damage to the economy, the Department of the Treasury on Aug. 1 announced it will increase the size of its auctions to help pay for the ballooning federal budget deficit.
The Treasury Department said it will have to increase the amount of bond auctions over the next three months. Experts noted this is a stunning reminder the government’s burgeoning debt is getting much bigger, and will start influencing interest rates sooner — or within the year.
Treasury said the total U.S. debt has just exceeded $21.3 trillion, of which $15.6 trillion is owed by the federal government. On Aug. 1, it said it will add $1 billion each to auctions of 2-, 3- and 5-year debt over the next three months.
It will then add $1 billion each for 7- and 10-year note and 30-year bond auctions in August. Treasury will also issue a new two-month note to help assure liquidity in the fixed income market.
The drastic changes will add $30 billion to the debt issuance for the third quarter. Overall, Treasury said it expects to borrow $769 billion in the second half of the year, a 63 percent increase from 2017.
Markets quickly reacted to the depressing news, with 30-year bond yields exceeding three percent for the first time in nearly two months.
When the Trump signed the Tax Cuts and Jobs Act of 2017 into law in December 2017, he boasted economic growth will more than make-up for the projected mammoth shortfalls from tax cuts and spending increases. Early results belie this claim, said economic experts.
The Congressional Budget Office (CBO) in a report last March, however, said Trump’s twin tax and spending bills will push the budget deficit to $804 billion this year and close to $1 trillion for the upcoming budget year in 2019.
The federal deficit will exceed $1 trillion in 2020 and $1.5 trillion by 2028. The cost to finance this humungous mountain of debt continues to skyrocket. It came to $458 billion in fiscal 2017 and is already at $415 billion in 2018 with three months left in the fiscal year. Revenue receipts are falling, thanks to the tax cuts that enormously benefit business.
Tax and withholding payments from individuals and corporations will amount to $1.752 trillion in 2018, a $17 billion drop year-on-year. That’s also below the 0.2 percent gain in revenues the government projected.
Experts say these negative factors raises questions about how long the temporary boost in economic growth will last, what will happen the next time the economy falls into recession.
“We’re applauding strong growth — yet have no choice but to borrow the largest amount of money since the financial crisis a decade ago,” said Bernard Baumohl, chief global economist at The Economic Outlook Group. “And that’s just the start. The U.S. will (be) running trillion dollar deficits as far as the eye can see.”
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