try to combat online stalking and trafficking. at 10:00 a.m. on c-span2, the senate judicial committee. on c-span3, testifying about the impact of the 1970 clean air act that the senate environment and public works committee. and ceo mark zuckerberg is on capitol hill answering questions about the way facebook is handled user data. a joint hearing starts at 2:15 p.m. eastern. deficit willet increase over the next few years according to the nonpartisan congressional agenda office. estimate comes after a 1.5 trillion dollar tax cut plan and a one point $3 trillion spending bill signed by president trump.

>> good afternoon. welcome to the congressional budget office. cbo. i thought before we answer questions, i would read a brief statement. we just released our annual budget economic outlook for this time for 2018 to 2028. i will start with a brief statement if that is ok. in the congressional budget's office;s baseline projections, which incorporate the presumption that current laws remain unchanged, the federal deficit grows substantially over the next two years to later on, between 2023 and 2028, it stabilizes in relation to the size of the economy, but at high levels. as a result, federal debt is expected to be on a steadily rising trajectory throughout the decade.

approaching 100% of gdp by 2028. as an economist, we have to give you the picture. there we go. projected deficits over the 2018-2027. --e increased markedly projected deficits over the 2018-2027 period have increased markedly since we issued our last rejections in june of 2017 and in our economic projections, which underlie our budget productions, inflation-adjusted gdp, which expands by 2.3% this year and 2.4% by 2018. the growth of real gdp exceeds the growth for attention gdp over the next two years.

the cyclical path of gdp will occur in large part because recent legislation provides significant stimulus at a time when there is very little slack in the economy. resulting from the new laws exert upward pressure on interest rates and prices. during the 2020-2026 period, those the factors along with a slower growth in federal outlays in the expiration of reductions in personal income taxes dampen economic growth. after 2026, economic growth is projected to rise slightly. matching the growth rate of attentional output by 2028. 2028, real 2018 and actual output and potential output are expected to expand.

the forecast is the key determinant for actual gdp through 2028 because actual output is very near its potential level now. it is projected to be near its the end ofevel by the period. potential output is expected to grow more quickly since the start of the 2007-2009 recession and nonetheless, potential output is expected to grow more earlierhan it did in decades. held down by slow growth of labor force, which results partially from the untimely retirement of baby boomers. the effects of the 2017 tax act, raise real potential gdp through the 2018-2028 period. time, it ise expected to boost real gdp and

increase by an average of 1.1 million jobs. our current economic projections differ from those we made in june of 2017 and a number of ways. the most significant is that potential and actual real gdp potential are expected to grow more quickly over the next few years. projected outlook is greater because of recent legislation. dated the became available after our reviews projections work completed. over the next decade, the unemployment rate is lower in our current projections. particularly during the next few years, economic stimulus use the need for labor. long-term interest rates are projected to be higher than average for 2018-2023. turning to the budget projections, we estimate the 2018 deficit will total $804 billion. $139 billion more than the

shortfall reported in 2017. in our projection, budget deficits continue increasing after 2018. as deficits accumulate, debt held by the public rises from 78% of gdp at the end of 2018 up to 96% of gdp by 2018. that percentage will be the largest sense 1946 and while more than twice the average of the past five decades. for the next few years, revenues cover near their 2018 level of 16.6% of gdp in our projections. then they rise a steadily, reaching 17.5% of gdp by 2025. at the and of that year, many provisions of the tax act expire. we have averaged 17.4% of gdp

over the past 50 years. in our fridge action outlays for the next three years, they than their average of 20.3% of the last 50 years. after that, it grows more quickly than the economy does. it reflects a significant growth in mandatory spending, mainly because of the aging population and health care costs and the projected increase for social security and medicare among other programs. it also reflects a significant which is aowth cost result of rising interest rates and mounting debt. by 2028, net outlays are projected to be roughly triple what they are this year in dollar terms and roughly doubled gdp.measured with discretionary spending is projected to decline in relation

to the size of the economy. project the7, we deficit as $1.6 trillion larger in june.ddicted outlays are higher by half $1 trillion. enactedne 2017, laws were estimated to make the accumulated deficit $2.7 trillion larger than previously projected between 2018 and 2027. -- [indiscernible] -- other changes had relatively small effects. cbl also analyzed an alternative scenario in which current law was altered to maintain major policies now in place.

substantial tax increases and spending cuts would not take place as scheduled under current law. to provide more emergency funding for 2018, and that scenario for larger deficits in much greater debt would result than cbo's current baseline projections. it would reach about 105 percent of gdp by 2028, an amount that has been exceeded only once in the nation's history. debt might possibly be pushed up -- inore sharply and mark following decades with serious consequences for the nation. a likelihood of a fiscal crisis in the united states would increase. questions.nswer some we have some smart people who worked on the report. john mcclellan is a guest, wherever he is.

come join me. john is the head of our tax analysis commission. do not mind, would you please state your name and organization when i ask you a question. quarterly.ional there used to be sort of a rule about revenue that averaged 18% and spending 20%. over the next 10 years, you are saying revenue 17% and spending 20%, set correct? >> that's right. >> juno know at what point that changed and why it change. instead about the same but it looks like -- >> over the past 50 years, revenue has dropped from 1817. thehe reason it dropped was

tax back. we expect the revenue projections are going to real about their 50-year historic average by the end of the 10 year. . particular lead during the next we will get back higher than normal revenue. >> did the great recession play a part in reducing past revenues which helped bring the past two 17%?rom 18% of >> there is a real cyclical aspect to revenues and spending. the great recession i think actually doubled the size of the debt in five quick years from lower revenues and higher spending. me go back to a picture here. one of the things about this picture i would like to not be missed is the business cycle

aspect. notice the time. this is the deficit. the time when the deficit is getting high, those times are all during business cycles at the end of recessions. yours have this week, significant increase. we're well away from the last recession and we are starting from a very high level. so any more business cycle activity that comes up is likely to push the deficit to quite high levels above what we are estimating right now. in case i had not depressed you enough. >> washington examiner. can i ask about your forecast. on the one hand, it is a little bit higher than the fed zone prediction -- then the fed's own prediction. i would that be?

-- why would that be? i am worried about them having that sector. there anything on the it rising much more quickly. the prospect for foreign >> first of all, one of the reasons we have actually upped our forecast of interest rates pretty significantly since june of 2017 is because we have just had a great deal of fiscal stimulus on an economy that is nearly out of slack. although we will have a nice jump in gdp potential. potential. we will pay above potential,

because we expect there will be pressure on prices, on inflation and interest rates. increase the fed will interest rates. as part of what we are seeing here in the slowdown of the gdp forecast. we do 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. because we expect the fed will have to deal with these inflationary 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 than what we are projecting makes a real

difference in the interest costs of total 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. again, as you 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. i know we have new tariffs on steel and aluminum -- those really are not in our forecast. those are things that could affect gdp growth. that will be part of our next phase find to be included in our economic forecast. >> so just to clarify, the likelihood of higher interest rates is why you believe in gdp will fall below potential around 2020 or 2021? keith: that is right. >> >> when was the last time

that the economy hit 105%? keith: it was a rather special time period. the timing of this israeli concerning, because we are not coming out of a recession. we are quite a few years off of a recession, and we have very high deficit. >> there is a number in the report that suggests the cumulative deficit impact is $1.9 trillion, quite a bit higher than the estimate. can you explain the discrepancy or how you arrived at that number? keith: sure. a few things about this -- it is different from the good work than jct did. we are dealing with a different time period, we have a different economic forecast. we are working off a different

baseline. i can tell you that the economic effects were kind of right in the middle with other folks in terms of the economic impact on things. i don't know if we are higher or lower than other folks, but the $1.9 trillion comes from about $2.3 trillion in direct increase in the deficit from the legislation. and then an 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 in the same language over and over again. you have not really sounded more alarmist, but here is your opportunity. [laughter] how much worse is this -- is

the fiscal picture now in the wake of this legislation? particularly on your alternative scenario? 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? theh: first of all, one of difficulties we have is 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 timing, i think one of the most important things about the timing is 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 the factors -- the measures need to be a fix it. 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 to fix the problem later on. >> growth is projected to be much lower than president trump -- the trump administration has rejected. could you tell me more a little about the potential impact negative during this period when unemployment rate is already low? keith: the tricky part for right

now, in terms of the 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 stimulus that pushes gdp above potential. that is the thing that becomes tricky over the next few years. potential,gdp above then we have to anticipate that we will have to have a soft landing at some point, because there is going to be pressure on prices and interest rates. >> kind of a follow-up from andy 's question. after 1946, the 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, looking ahead? how was the debt and the fiscal situation different compared to where we will be in 2028, with that amount of debt? keith: i think that the single most important difference is that debt will be high and rising. our forecast beyond 10 years 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 projected gdp. we are getting to really quite high levels. there is really no trend path under current law to fix the problem. that is the biggest difference. can you guys weigh in on the best policy solutions for addressing that problem?

we know there is some debate today with former ceo chair saying it is not about cutting , notlement spending cutting taxes at this moment in time -- is there a policy description that you guys would suggest over others? keith: we go out of our way not to make a policy prescription except to say that congress has tough decisions to make about how to deal with this problem. they have some options. one of the things i think will be really important, if you look ahead 10 years from now -- just the net interest cost. just of interest payments will exceed total nondefense discretionary spending in 10 years. you are getting at a level were just of the interest cost is getting to be a really big part of the budget. that means 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 expires in 2025. there has been talk about moving another bill this year that would make that permanent. could you give me an estimate of what that would do to the deficit? keith: we do have that alternative fiscal scenario, where we did assume those tax cuts would stay in place. the spending caps would stay in place. the expensing bonus would stay in place. that is some of our current policy baseline. debt to gdpe the ratio being about 106% of gdp instead of 96%. so that would have a significant effect. >> that would happen immediately, not in the 10 year window? keith: it would happen over the 10 year window. that is actually part of the trickiness over the forecast,

because we are assuming current law. we have to worry about do people really believe that the tax cut, that taxes are going to go back up after 2025? how many believe they will be extended? we have to deal with expectations little bit. it adds to the uncertainty in our forecast. >> look at the increase in nondefense discretionary spending and 2018, the biggest part of that is disaster spending. emergency disaster -- $102 billion, i think. to what extent does that translate into outlays, which actually increase the deficit? well, under our baseline, 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 that the spending is more like $11 billion a year, because we think that is more realistic.

that is one direction where the alternate fiscal scenario would actually help the deficit a little, because we do not think that $100 billion is going to continue. >> just looking at the $100 billion for 2018, do you assume that all of that budget authority turns into outlays and adds to the deficit? >> not in 2018? >> no. >> it would over time. >> it would over time, over the ten-year period. >> a question on the tax estimate. can you explain why it is an 11 year window for the $1.8 trillion? keith: you mean why we extended it out to 2028? >> 11 years versus 10 years. keith: >> this would be the forecast,t of our would be to take it out that

far. this is our normal budget outlook. 2018 to 2028. nothing different about that. probably what is unusual is the estimate earlier, which was a year earlier. >> i think that inside the report, you look at the international divisions. said that you guys found that the international provisions might encourage companies to locate changeable assets overseas. can you talk a little bit about that how you you came to that decision? >> there are provisions of the act that have attempted to try to shift what has been a problem over the years -- firms locating certain assets overseas. there are particular provisions

to, in tandem, tried to discourage those locations. we try to identify items overseas that have a very high return to entry them differently from other activities. one way to work around a rule of that sort is to put things that have a low return. so that would be a tangible asset. that is a way to try to soften how much this any abuse rule does. clearly, it is a very complicated set of decisions that national companies are confronting as they deal with the new tax law. this is one i think some observers have felt like it may not be working as intended. that said, we're still waiting for guidance from the internal 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 incentives under the new law. >> there is a box in there which is estimated that the law will reduce the deficit -- is there a way to translate that to revenue? >> not directly. i think the observation that we are try to make with some of these is to recognize the fact that these decisions about where to locate certain activities and where to attribute profits have the ability to actually distort economic statistics. i think the discussion there in pointing out the fact that you may have these flows that are currently attributed to a foreign party.

recall under the new law going forward, the activities of foreign multinationals will not necessarily be subject to tax. unless it is 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. >> when you net out the cost of cuts -- $1.5nd tax trillion -- does that include -- do you try to portion out the effect on interest rates? or does it impact the entire legislative change? does this try to put that all in the same box? >> part of the macro feedback

estimate is these types of interest rates and the change in path of interest rates. >> as a follow-up on that, i think the earlier score on the tax cut was $1.1 trillion. including feedback. of how a higher estimate much to 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. schlanger economic growth. we have a different baseline. -- stronger economic growth. we have a different baseline. we have some new information. we have some withholding tables that the treasury put out that help inform things, which were not available earlier. we have taken 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 and how the interest rate affects the debt service. it is not an apples to apples comparison. typically, the committee is not estimating the debt service. the effective federal borrowing, changes to federal borrowing on debt service. a conventional score or a dynamics or typically would not incorporate affects on debt service from changes in federal borrowing. a dynamic score would typically include changes in interest rates on debt service. but this is all in. it affects interest rates and federal borrowing. >> thank you.

>> so we answered all the questions? you guys absorbed a big report very quickly. [laughter] well, you know where we are if you have additional questions. thank you all for coming. [captions copyright national cable satellite corp. 2018] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org]

" washington journal " -- live every day with news and policy issues that impact the appear coming up this morning, author ronald kessler discusses his new book "the trump white house." then, documentary filmmaker michael kirk discusses his new pbs "frontline" film on the trump presidency. and nasa's martin still discusses the search for new planets. join the discussion. week, facebook ceo mark zuckerberg will testify before senate and house committees on facebook's handling of use

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