Legislation passed in December and other developments have set the stage for higher deficits and national debt. Trillion-dollar deficits could now return as early as next fiscal year and the debt could exceed the size of the economy within a decade, mostly due to new tax legisaltion. We have a rundown on what could run up the debt and other happenings related to the federal budget.
Tax Legislation Passes – The House and Senate approved the Tax Cuts and Jobs Act, which reduces individual and corporate tax rates. Including the gimmicks meant to hide the true cost of the bill, it could cost $2 trillion or more over a decade. See our tax resources for more. Legislation was also introduced to extend several tax breaks not covered in the tax bill.
Health Care Still An Issue – Although attempts earlier this year to repeal and replace the Affordable Care Act (Obamacare) failed, the issue did not go away. The tax legislation included repeal of the individual mandate requiring most Americans to acquire health insurance. In addition, the Children’s Health Insurance Program (CHIP) expired at the end of September, although some short-term funding was just approved with the continuing resolution (see below). Legislation in the House to renew it for five years would offset the cost while the Senate version would not. Congress is also considering further delaying several taxes designed to help fund the health care law.
Can’t Stop the Stopgaps – For the fourth time in calendar year 2017, Congress passed a stopgap measure to keep the federal government funded ahead of a Friday deadline to prevent a government shutdown. The new continuing resolution lasts until January 19. Three months into the fiscal year that began on October 1, there still is no government spending plan for the full year. See how the annual government spending process is supposed to work.
More Disaster Relief – The House passed an additional $81 billion to respond to the hurricanes and forest fires earlier this year, but the Senate has not voted on it yet. Some lawmakers want to offset the cost of the package.
Putting the Sequester Away – In conjunction with a spending package for the rest of fiscal year 2018, Congress is working on a deal to delay the automatic sequester spending cuts for two more years.
Interest Rates Going Up – The Federal Reserve raised interest rates in December for the third time in 2017 and projected that three more rate hikes would occur in 2018. Higher interest rates will mean larger interest payments on the debt. See more on interest and the national debt.
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