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country. c-span is brought to you by your cable or satellite provider. the u.s. budget deficit will increase over the next few years according to the nonpartisan congressional budget office. this new cbo estimate comes after a 1.5 trillion dollar tax cut plan and a one point three trillion dollars spending bill signed by president trump. good afternoon. welcome to the congressional budget office, cbo. i thought before we answer questions, i would make a brief statement. we have just released our annual economic outlook or 2018-2028. 2018-2028.

in the congressional budget office's baseline projections which incorporate the assumption that current laws governing taxes and spending remain unchanged, the federal budget deficit grows substantially in the next few years. 2023-20 28 iteen stabilizes in relation to the size of the economy. isa result, federal debt expected to be on a steadily rising trajectory approaching 100% of gdp by 2028. we are economists so we will want to give you a picture. there we go. projected deficit over the 2018-2027 period has increased markedly since we issued our last projections in june 20 17. the increase stems primarily

from taxes and spending a distillation and acted since am especially the 2017 tax act, the act of 2018udget and the consolidated appropriations act of 2018. in our economic projections which underlie our budget projections, inflated adjusted gdp expands by report -- 3.3% this year and 2.4% in 2019. driven byis growth is consumer spending but federal spending also contributes. gdp exceedsf real the growth of real potential gdp over the next two years. this marked cyclical path in real gdp will occur in large part because recent legislation provides significant fiscal stimulus at a time when there is very little slack in the economy. aose effects as well as larger federal budget deficits resulting from the new laws

exert upward pressure on interest rates and prices. 2020-2026 period, those factors along with the slower growth in federal outlays and the expiration of reductions in personal income taxes dampen economic growth. after 2026, economic growth is projected to rise slightly matching the growth of potential outlook by 2028. 2028, real8 and actual output and real potential output are projected to expand on an average annual rate of 1.9%. in our forecast, the growth of gdp is the key determinate through 2028 because actual output is near potential level now. potential output is projected to grow more quickly than it has 2000 --e start of the 2007-2009 recession.

nonetheless, potential output is projected to grow more slowly than it did in earlier decades held down by slower growth of labor force which results harshly from the ongoing retirement of baby boomers. in our projection, the effects of the 2017 tax act on saving and investing raised real potential gdp. over the same period, the tax act is expected to boost the real level of gdp by 0.57% and nonfarm payroll by one point 9 million jobs. our current economic projections differ from those we made in june of 2017 in a number of ways. the most significant is a potential and actual gdp are expected to grow more quickly. because of recently enacted legislation.

improvements in our analytical methods. over the next decade, the unemployment rate is lower than our current projections. particularly in the next few years when economic stimulus boosts demand for labor. long-term and short-term interest rates are expected to be higher in 2018 and 2023. turning to the budget projections. we estimate that the 2018 deficit will total $804 billion. billion more than the 660 $5 billion shortfall recorded in 2017. in our projections, budget deficits continue increasing after 2018. as deficits accumulate, that in the public rises to $16 trillion. at the end of 2018 to 96% of gdp. that percentage would be the

largest since 1946 and well more than twice the average of the past five decades. years, revenues hovering near their 2018 level of 16.6% of gdp in our projections. steadily reaching 70.5% of gdp by 2025. at the end of that year many provisions of the 2017 tax act expire causing receipts to rise gdp and 18.5.1% of percent. we have averaged 17.4 percent of gdp over the past -- years. in our projection outlays -- they remain near 21% of gdp, higher than their average of 20.3% over the past 50 years. after that, outlays grow more quickly than the economy does. aging because the

population and rising health care costs or beneficiary are expected to increase spending for social security and medicare. it also reflects significant growth in interest costs which are projected to grow were quickly than any other major component of the budget as a result of rising interest rates and mounting debt. 20 eight, new outlays for interest are projected to be roughly triple what they are this year in dollar terms and roughly double when measured as a percentage of gdp. in contrast, discretionary spending is projected to decline in relation to the size of the economy. project and- we now accumulated deficit at $1.6 thanion deficit larger what is anticipated in june. laws enacted since june of 2017,

above all the three mentioned earlier, are estimated to make trillion --to $.7 2.7 julian dollars larger than expected. mainly because of expectations of faster growth in the economy and corporate profits. other changes have had relatively small meta-effects. also analyzed an alternative scenario in which current law was altered to maintain major policies now in place. is substantial tax increase and spending cuts would not take place as scheduled under current law. to provide more typical amounts isemergency funding than provided for 2018. in that scenario, larger deficits and greater debt would result been in cb's current baseline projections. debt held by the public would by thebout 105% of gdp

end of 2028. an amount that has been exceeded only once in the history of the nation. the pressure is contributing to the rise would accelerate and pushed debt of more sharply in subsequent decades. >> such high and rising debt would have serious negative consequences for the budget in the nation. in particular, the likelihood of a potential crisis in the u.s. would increase. i cannot answer some questions. -- can now answer some questions. we have some smart people who worked on the report on the side. i would like to ask john to come join me. he is the head of our tax analysis division. if you don't mind, would you please state your name and news organization when asking a question? >> there used to be a sort of

rule of thumb over the previous 40 years, revenue had averaged 18% spending 20%. now, over the next 10 years, you are saying it is revenue at 17% and spending at 20%, is that correct? >> that is correct. >> do you know at what point that changed? and why it changed? spending has stayed about the yearsbut over the past 50 revenue has dropped from 18% to 17% average? >> actually the recent drop was with the tax act. the revenueat projections were going to grow back to above their 50 year historical average at the end of the ten-year period. which helped bring the past -- >> did the great recession play a part and reducing past revenues, which helped bring the

best average from 18% to 17%. -- 17%? >> the great recession actually over doubled the size of the debt in five quick years. it actually reminds me, if you don't mind, let me go back to a picture. one of the things about this to not, i would like it be missed is that business cycle aspect of this. this is the deficit. periods where the deficit is getting high, it is altering business cycles and the recessions are you always have this big significant increase. we are well away from the last recession, and we are starting from a very high level. so anymore business cycle activity that comes up, starting from this high level, is likely

to push the deficit to quite high levels than what we are forecasting right now. in case i haven't depressed you enough. examiner."gton can i ask about your forecast and on the one hand, if i understand correctly, it is a little bit higher than the fed's own projection? why would that be? beingu worried about high? also, is there anything that is on the horizon that would make those rises more quickly? changing the overall picture, tariffs have been in the news a lot.

all, one of the reason that we have actually upped our forecast of interest rates pretty significantly since june of 2017 because we have just had a great deal of fiscal stimulus on an economy that is outof slack. we expect we going to have a nice jump in gdp potential. we expect there will be pressure on prices, on inflation and interest rates. we expect the fed will excel the rate their increase in interest rates. that is actually a part of what we are seeing here in the slowdown of the gdp forecast. we see federal funds rate. we expect it to go up 2.5% by the end of this year, by about 3.5% by the end of next year. we expect the fed will have to deal with these inflation

ary pressures. you are right to focus on interest rates, because interest rates are one of the more uncertain parts of our forecast. we have such a high debt level that a little bit higher interest rate and a little bit lower interest rate the what we -- than what we are projecting makes a real difference in the interest cost that the federal government experiences. we obviously, what we have done is forecast -- because of the legislative changes, we expect interest rates to accelerate faster than we did before and get to a same sort of relatively high level that we expected all along. we think it is going to accelerate things faster. as we mentioned, if interest rates are higher or lower, that would make a pretty big impact on where we are with respect to debt in 10 years. things like tariffs, we have not had a chance to look at that much. those really are not in our

forecast. those are things that could affect gdp growth. it will be included in our economic forecast. >> so just to clarify the , likelihood of higher interest rates is what you believe in gdp will fall below potential around 2020 or 2021? >> that is right. >> ok. when was the last time the economy hit that percentage? >> immediately after world war ii. it was a rebels -- rather special time period. the timing of this is special -- really concerning, because because we are not coming off of the recession and we have very high deficit. yes. thehere is a number in

report that suggests that the cumulative deficit impacts of the tax bill is 1.9 trillion. you explain the discrepancy or how you arrived at that , number? >> sure. it isthings about this, different from the good work .c.t. did, because we are dealing with a different time period, we have a different economic forecast, and we are working off of a different baseline. i can tell you that the economic effects were kind of right in the middle with other folks in terms of economic impact on things. i don't know if we are higher or lower than other folks, but the $1.9 trillion comes from $2.3 trillion in direct increase in the deficit from the legislation and then economic growth will take off about $460 billion of

that deficit increase. that is how we get to where we are. yes. >> i have heard a lot of these reports in the past. you have a tendency to talk about the dangers of the deficit. it is the same language over and over again. moreave not really sounded alarmist, but here is opportunity. how much worse is this, is this fiscal picture now in terms of the in the wake -- in the wake of the burst of legislation? when you say that it increases the likelihood of a fiscal crisis, does it also increase the likelihood that a fiscal crisis would occur earlier? >> first of all, one of the

difficulties we have is that nobody knows what is too much debt. what will cause a fiscal crisis? it really depends upon the country, it depends upon the situation, the real key of course is whether people are still willing to loan the federal government money when the government continues to borrow. the one thing we can say and we do try to say is the bigger the debt, the bigger the chances of a fiscal crisis. with respect to time, i think one of the most important things about the timing is when you start to fix something like -- when do you start to fix something like this. the longer you wait, the more draconian the measures have to be to fix the problem. the earlier you start to tackle it, the less draconian measures have to be. if you continue to ignore it, you are going to require economic policy to make some more dramatic, congress to make some more dramatic changes later

on. yes. gdp growth is projected to be much lower than president trump has projected. so would you tell me a little bit more on the potential dynamic impact during this period when unemployment rate is already low? >> ok. the tricky part for right now, in terms of economics is to have so much stimulus at a time when there is very little slack in the economy. there is some affect from the tax bill that raises potential gdp, but when we say potential gdp we are talking about the supply side of the economy. there are some increases to the potential gdp, but there are more spending limits that pushes gdp above potential.

that is the thing that becomes tricky over the next few years, because if we have gdp above potential, we have to anticipate that we are going to have to have a soft landing at some point. there's going to be pressure on prices and interest rates. yes. from andy's got question -- up from andy's question. so after 1946, debt was more than 100% of gdp. by 2028, it will be approaching that. what is the difference between what the outlook was in 1946 and looking ahead? how was the debt and fiscal situation different compared to where we will be in 2028 with that on debt? >> i think that the single most important difference is that debt will be high and rising. our forecast beyond 10 years has

-- does nothing but show rising debt to gdp ratio. we anticipate within the next decade after that, that we will break the record under current law. we are getting to really high levels and there is really no trend path under current law to fix the problem. that is the biggest difference, i think. >> do you guys weigh in on the best policy solutions for fixing that problem? i know there is some debate. saying that- chair it is not about cutting entitlement spending. it is not about cutting taxes at this moment in time. is there a specific policy description that you guys would suggest over others? >> we would go out of our way to not make a policy description.

got some tough decisions to make about how to fix this problem. they have got some options. if you sort of look ahead to 10 years from now, just in that -- the net interest cost. the annual cost just of interest payments will exceed total nondefense discretionary spending in 10 years. you are getting at a level were where just of the interest cost is getting to be a really big part of your budget. to fix it and deal with it, you have to deal with a big part of the budget to fix it. >> congress is looking at extending the individual tax cut that expire in 2025, they're talking about moving another bill this year that would make that permanent. can you give me an idea on what that would do to the deficit? >> we do have that alternative fiscal scenario, where we did

literally assume that those tax cuts would stay in place the , spending cap would stay in place. that is sort of our current policy baseline. there we see the debt to gdp ratio to be about 100 and 6% -- 106% of gdp instead of 96%. that would have a significant effect. >> that would happen immediately, not in the 10 year window? >> that would happen over the 10 year window. that's right. that is actually part of the us ofng us -- tricking the forecast. because we are assuming current law. we have to worry about do people really believe that the tax cut, that taxes will go back up after 2025? how many believe that they will be extended? we have to deal with expectations a little bit, and inadds to the uncertainty our forecast. >> look at the increase in

nondefense discretionary spending and 2018, the biggest part of that is disaster spending. disaster is at $102 billion, i think. to what extent does that translate into outlays, which actually increase the deficit? , we assume that those outlays continue at that level. that is part of why you have the alternate fiscal scenario. we have taken it down to where we assume the spending is more like $11 billion a year because we think that is more realistic. that is one direction where are -- the alternates would actually help the deficit a little bit because we don't and that $100 -- think that $100 billion is going to continue. >> just looking at the $100 billion for 2018, do you assume the all of that budget turns into outlays and adds to the deficit? >> no. >> not in 2018. it would over time. >> it would over time, over the ten-year period.

>> a quick question on the tax estimate. can you explain why it is an 11 year window for the 1.8% -- $1.8 trillion? versus the 10? >> you mean why we extended it? >> the 11 year versus the 10 year. >> this would be the normal part of our forecast where we take it out that far. this would be our normal budget outlook. we give you -- we take it 2018-2028. there's nothing different about that, we what was unusual -- probably what was unusual was the baseline earlier. >> quick question.

if you look at the international divisions, the journal said that you guys felt -- found that the international provisions might encourage companies to locate tangible assets overseas. ok talk a little bit about that and how you came to the conclusion? >> there are provisions that have attempted to try to shift what has been a problem over the years of firms locating certain assets overseas. there are particular provisions to in tandem they are intention to try to discourage those locations. we try to identify items overseas that have a very high returns. one way to work around our role rulerole of that sort -- of that sort is to put things that have a low return. that is a way to try to soften how much this anti-abuse rule

stuff. clearly, it is a very complicated set of decisions that multinational companies are confronting as they deal with the new tax law. this is one of some observers have found that it may not be working as intended. that said we're still waiting , for guidance on the revenue service to actually outline how these rules will be applied. it is a global basis that is looking at is this activity that a u.s. firm has overseas earning a high return? if that is what triggers a rule, one way to reduce that is to put something low with the high and that gives you something that looks like a typical rate of return. that is a perverse incentive, but it is a potential risk as firms try to confront their new -- there incentives under the new law. , there is a box in their in which it is estimated two the lot will reduce --

-- per year. is there a way to translate that to revenue? >> not directly. i think the observation that we are trying to make is to recognize the fact that these decisions about where to locate certain activities and certainly were to distribute profits -- where to distribute profits have the ability to actually distort economic specifics. i think the discussion there in pointing out the fact that you may have these flows -- whether that is fully educated, recall recall underted the new law going forward, the activities of foreign multinational will not necessarily be subject to tax, except when caught up by these high return assets types of rules. it is very hard to translate that to a dollar for dollar bottom line impact on revenues. >> this is a little technical.

out -- net out the cost of the tax deficit to beat $1.5 trillion, is that -- does that include the tax impact on interest rates? there is an effect on interest rates from the entire legislative changes, -- i'm tried to put it all in the -- did this try to put that all in the same box? >> part of the feedback estimate is these types of interest rates and the change in path of interest rates. that, i thinkp on the earlier score of the tax cut was $1.1 trillion. is this higher estimate of how how much -- how much it will increase the deficit over 10

years? >> it is a bit of a different estimate. i don't want to play up comparisons to the early estimate because so much has changed. we have a different economic forecast, stronger economic growth we have a different , baseline, we have some new information, we have some withholding tables which are not available earlier. we have taken on more information. there are a number of reasons for why the numbers look a little bit different than they did before. >> i believe that number also does not include the full cost of the debt service. it is not an apples to apples comparison. >> you did not? >> that is correct. committee has not estimated that debt service. of federal --ct

changes to federal borrowing on debt service, so conventional score or a dynamic score typically would not incorporate affects on debt service from changes on borrowing. federal a conventional score would not incorporate any changes to debt service. this includes affect on interest rates, and changes in federal borrowing. >> thank you. >> so we answered all the questions? you guys absorbed a big report very quickly. [laughter] you know, if you have additional questions, you know where we are at. thank you all for coming.

[indiscernible] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] [captions copyright national cable satellite corp. 2018] >> this week, facebook ceo mark zuckerberg will testify before a senate and house committees on facebook's handling of user information and data privacy. today at 2:15 p.m. eastern on

c-span three will answer questions during a joint senate judiciary and commerce committee hearing. and then on wednesday on c-span3 he will appear before the house energy and commerce committee. watch live coverage on c-span3 and online at c-span.org. listen live with the free c-span radio at. -- radio app. >> the united nations security council health an emergency meeting on the alleged chemical weapons attack in syria, which killed more than 40 people and injured hundreds more. members were briefed by the you when special envoy for syria, and officials for the u.s. office for disarmament affairs. also hear from nikki haley, along with russia's ambassador to the u.n.