Law360 is providing free access to its coronavirus coverage to make sure all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to sign up for any of our weekly newsletters. Signing up for any of our section newsletters will opt you in to the weekly Coronavirus briefing.
Law360 (September 23, 2020, 7:44 PM EDT) -- Economic disruption from the novel coronavirus pandemic and Congress' efforts to combat it will increase the federal deficit to record levels, despite an expected rise in tax revenue once the 2017 tax law expires, the Congressional Budget Office said Wednesday.
Phillip Swagel, director of the CBO, told the Senate Budget Committee that federal debt held by the public will surpass its historical high of 106% of gross domestic product in 2023 and climb in future years until it reaches 195% of GDP in 2050. For that year, the deficit is projected to equal 13% of GDP.
Meanwhile, federal revenue will rise from an average of 16.4% of GDP from 2010 to 2019 to an average of 18.4% from 2041 to 2050, he said, citing newly released CBO projections. Most of the revenue increases will come from higher individual taxes paid because of income tax bracket creep and the expiration in 2025 of most of the individual tax provisions of the 2017 Tax Cuts and Jobs Act .
"The challenge with long-term fiscal policy is that the path over the coming decades is unsustainable," Swagel testified. "The cost of financing these deficits and servicing the debt cannot consume an ever-growing proportion of the nation's income."
The CBO released its 2020 long-term budget outlook on Monday, giving a snapshot of the fiscal health of the nation if tax and spending laws remain unchanged. Higher federal spending and lower revenue from the pandemic and ensuing recession will push the level of debt held by the public to an estimated 98% of GDP by the end of 2020, the report says.
Sen. Mike Braun, R-Ind., asked Swagel if the CBO wanted to revise its forecasts in light of the impact of the TCJA, which he said caused federal revenue to rise more than 4% annually before the pandemic. He said the growth of the federal deficit was related far more to spending increases than to the tax law.
"At some point, we've got to realize that whatever we do on the tax side of the equation, it's not going to address the fact that we don't have the political will to do something on the spending side," he said.
Swagel acknowledged that the revenue growth was "extremely strong," noting that the agency is still estimating the law's impact on the economy. However, the CBO will not be making recommendations on whether spending or revenue policy should be adjusted to deal with the federal debt and deficit.
Sen. Chris Van Hollen, D-Md., asked Swagel to verify the CBO's estimates that increasing funding to state and local governments as part of pandemic relief legislation is an efficient form of economic stimulus, while cutting business taxes would be less effective.
Swagel said providing state and local governments with funding is an especially effective way to address the deficit and raise the GDP because with higher funding they "don't have to raise taxes or cut spending by as much as they might have to," he said.
"Business tax provisions do have a positive impact on GDP," he said, but "not as large as the state and local money."
--Editing by Robert Rudinger.
For a reprint of this article, please contact email@example.com.