WASHINGTON—The Trump administration expects annual budget deficits to rise nearly $100 billion more than previously forecast in each of the next three years, pushing the federal deficit above $1 trillion starting next year.
The revisions, which went largely unnoticed when the White House submitted its annual update to Congress last week, reflect the cost of federal spending increases agreed to earlier this year and higher interest payments.
The budget proposal released in February showed annual deficits totaling $7.1 trillion over 10 years. The latest revisions increase these cumulative deficits by $926 billion, to $8 trillion.
The report highlights the challenge the Trump administration faces in reducing deficits. Administration officials have said stronger economic growth would allow recent tax cuts to generate more revenue over the long run, offsetting initial declines in receipts from rate cuts.
But the latest projections show the deficit rising even though the administration projected an even stronger uptick in federal revenue.
While President Donald Trump “used to talk about creating such great economic growth to reduce the deficit, now you see a budget acknowledging a massive run-up due to policies he has supported,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which supports debt reduction.
“Their policies are not paired with a single recommendation to start making [the deficit] better,” said Ms. MacGuineas.
The White House budget office now estimates that the deficit will rise to nearly $1.1 trillion in the fiscal year that begins this October, or 5.1% of gross domestic product, up from $984 billion projected in February’s budget proposal. The U.S. ran a deficit of $666 billion for the fiscal year that ended Sept. 30, 2017, or 3.4% of GDP.
“Gigantic deficits are not good, and we’re going to run, as a share of GDP, 4%, 5%,” said Lawrence Kudlow, director of the White House National Economic Council, at a conference hosted by CNBC on Wednesday. “That’s not bad. I’ve seen worse.”
Since World War II, the U.S. has posted budget deficits that exceeded 5% of GDP in just two periods—in 1983 and from 2009 through 2012. Both of those episodes followed periods of significant economic stress, including the only recessions in which the unemployment rate rose to at least 10%. The White House expects the unemployment rate, currently at 4%, to reach 3.7% next year.
Mr. Kudlow said tax cuts would initially lead to declines in federal revenue but that the government could recoup those losses over time. “Yes, we will lose some revenues in the very short run. I believe we’ll get it back and more,” he said Wednesday.
More than half of the increase in the higher deficit forecast resulted from federal spending increases approved earlier this year. Both parties chafed against spending caps set in law as part of a 2011 deficit reduction agreement, and they reached a new deal in February to loosen those curbs.
The White House later submitted plans to rescind smaller amounts of spending previously authorized by Congress. The House of Representatives approved last month a bill to rescind $15 billion in spending, but the measure lacks sufficient support in the Senate.
The White House also revised up its projections of interest rates this year and next, which together with the funding boost increased projected interest payments on the public debt. The Trump administration estimates those will rise by $161 billion above prior forecasts over the coming decade.
The White House now expects yields on the 10-year Treasury note will average 3% this year, up from 2.6% in February, and 3.2% next year, up from 3%. Those estimate are still below projections by private forecasters or the Congressional Budget Office.
The deficit projections would have swelled even higher if not for estimates of increased receipts. The White House expects revenues will rise $95 billion over the coming decade above previous projections, in part from estimates that stronger economic growth will boost household incomes.
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