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The Congressional Budget Office (CBO) released The Budget and Economic Outlook: 2019 to 2029 on January 28, 2019. The report highlights large deficits and growing federal government debt over the next decade and how tax policy choices could impact this trajectory. The CBO projects that, under current law, the federal deficit is estimated to grow from nearly $900 billion in 2019 to approximately $1.4 trillion in 2029. It exceeds $1 trillion in every year beginning in 2022. As a result, the ratio of federal debt held by the public-to-gross domestic product (GDP) is projected to increase from 78.3% in 2019 to 92.7% in 2029.

As seen in Figure 1, tax policy choices could significantly impact the federal budget over the 2020-29 budget window.

• Extension of individual income tax provisions in the Tax Cuts and Jobs Act (TCJA). The TCJA's changes to the individual income tax system generally sunset at the end of 2025. This includes reductions in individual income tax rates, changes to the thresholds for individual income tax brackets, the nearly doubling of the standard deduction, and the 20% deduction for qualified pass-through income. If extended, these provisions are projected to reduce federal government revenue by $957 billion over the 2020–2029 budget window.
• Repeal of certain postponed health taxes. The Extension of Continuing Appropriations Act, 2018 postponed the health insurance provider tax (until 2020), the medical device excise tax (until 2020), and the excise tax on certain health insurance plans with high premiums (until 2022). Repealing these provisions is projected to reduce federal government revenue by $392 billion over the 2020-29 budget window.
• Extension of 100% bonus depreciation. The TCJA allows 100% write-off of qualified property through 2022, followed by a phase-out (80% in 2023, 60% in 2024, 40% in 2025, 20% in 2026, and 0% thereafter). Extending 100% bonus depreciation is projected to reduce federal revenue by $174 billion over the 2020-29 budget window.
• Extension of other expiring revenue provisions. More than 20 other tax provisions and trade preference programs expired in 2018 or are scheduled to expire by 2029. Extending these provisions is projected to reduce federal revenue by $103 billion over the 2020-29 budget window.

As additional post-sunset years are included in the 10-year budget window, the revenue cost of extending the major TCJA provisions that would otherwise sunset increases by more than $300 billion per year. For example, including 2029 in the 10-year budget window increased the cost of extending the TCJA provisions from $814 billion to $1,132 billion.

The reduction in federal revenue by more than $1.6 trillion from these potential policy changes would also result in $143 billion of additional debt service. Overall, these changes would increase the $11.6 trillion of total federal deficits over the 2020-29 budget window under current law by more than 15% (to $13.4 trillion). Put differently, these potential policy changes would increase the ratio of federal debt to GDP in 2029 by nearly 6 percentage points (from 92.7% to 98.4%).

Figure 1. Impact of tax policy choices on federal deficit, 2020-29 budget window

Source: Congressional Budget Office, The Budget and Economic Outlook: 2019 to 2029, January 28, 2019.

Implications

The CBO projects annual deficits to be, on average, nearly $1.2 trillion annually under current law over the 2020-29 budget window. Such deficits and the resulting accumulation of debt will place additional pressure on policy makers to address the federal government's long-term fiscal imbalance.

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