Federal debt projected to grow by nearly $10 trillion over next decade

WASHINGTON — After seven years of fitful declines, the federal budget deficit is projected to begin swelling again, adding nearly $10 trillion to the federal debt over the next 10 years, according to projections from the nonpartisan Congressional Budget Office that reveal the strain that government debt will have on the economy as President Donald Trump embarks on plans to slash taxes and ramp up spending.

The new deficit figures will be a major challenge to congressional Republicans, who were swept to power in 2010 on fears of a swollen deficit and who have made controlling red ink a major part of their legislating under former President Barack Obama. Statutory caps imposed in 2011 on domestic and military spending have helped control the deficit. But those controls are likely to be swamped by health care and Social Security spending that will rise with an aging population.

Now, congressional leaders will have to choose between their fealty to the cause of fiscal prudence and the demands of the new president, who wants $1 trillion in infrastructure work over 10 years, a surge in military spending and large tax cuts for individuals and corporations.

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At a confirmation hearing Tuesday, senators from both parties peppered Rep. Mick Mulvaney, R-S.C., Trump's choice to be White House budget director, with questions about how Trump intended to keep his promise to protect Social Security and Medicare while addressing the budget shortfall.

Mulvaney said that it would be his role to give hard truths to Trump. One of those hard truths, he suggested, could be the need to raise the eligibility age for Social Security, a proposal that is sure to be controversial.

"I believe, as a matter of principle, that the debt is a problem that must be addressed sooner rather than later," Mulvaney said.

The deficit is expected to shrink this fiscal year and next before swelling in 2019 and beyond. Deficits would cumulatively total $9.4 trillion from 2018 to 2027, the budget office projects. By 2023, the deficit would reach $1 trillion, and in 2027, a projected $1.4 trillion deficit would be equal to 5 percent of the economy, well over the 3 percent that economists view as the danger point.

The Congressional Budget Office's budget and economic outlook said that the share of debt held by the public was expected to reach 89 percent of gross domestic product in 2027. Such a high level of debt could increase the likelihood of a financial crisis and raise the possibility that investors will become skittish about financing the government's borrowing.

"As a new president and Congress take office, one thing hasn't changed: Our nation's fiscal outlook remains unsustainable," said Michael A. Peterson, president of the Peter G. Peterson Foundation, an organization that pushes deficit reduction. "Now is the time to tackle this long-standing issue."

After the release of the report, the House conservatives on the Republican Study Committee signaled that they would not ignore that rising red ink to accommodate Trump's spending ambitions.

"Without changes to the federal budget, we are on a path to fiscal crisis with spending, deficits and debt continuing to balloon out of control," said Rep. Mark Walker of North Carolina, chairman of the group. "We cannot in good conscience neglect this stunning reality."

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Besides the deficit, tepid economic growth is also a concern. Over the next 10 years, real economic output is projected to grow at an annual rate of 1.9 percent.

Trump has promised that his combination of tax cuts and investment on infrastructure will cause growth to surge above 4 percent, and Mulvaney argued Tuesday that spurring growth was the most effective way of reducing the debt without imposing painful cuts to social safety-net programs.

Some senators such as Angus King, I-Maine, warned against a return to discredited theories that tax cuts would generate enough growth to reduce the deficit and predicted that Trump's proposals could dig a deeper hole.

Democrats are likely to oppose large tax cuts, but they will press Trump to make good on his promise to spend big on infrastructure. Senate Democrats on Tuesday unveiled a $1 trillion plan to rebuild the nation's roads, bridges, rail, transit systems, airports, sewer systems and power grid.

"We will not cut middle-class programs like education and health care to pay for it," said Sen. Chuck Schumer of New York, the Democratic leader.

When it was pointed out that he was proposing deficit spending that Republicans were sure to balk at, Schumer was dismissive.

"We Democrats believe that this should be a measure to get the economy going," he said. "This is a jobs-creating bill."

Sen. Bernie Sanders of Vermont, the former Democratic presidential candidate, said that Mulvaney's views on the deficit, Social Security, Medicare and Medicaid were out of sync with Trump's campaign promises to protect the programs.

"It does not make sense to me to have a key adviser to the president having views directly in opposition to what the president campaigned on," Sanders said.

Despite the swelling deficit, the report describes an economy that is currently on "solid ground," with increasing output and job growth on the immediate horizon. The snapshot represents a stark contrast to the economic "carnage" that Trump detailed in his inauguration address and the crisis that faced Obama when he took office eight years ago.

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Jennifer Steinhauer contributed reporting.