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Takeaways from the CBO’s Annual Budget Report

As Trump takes the reins, three things you need to know about the nation’s deficit, debt, and economic growth.

Congressional Budget Office (CBO) projections

On Tuesday, Congressional Budget Office (CBO) Director Keith Hall published “The Budget and Economic Outlook: 2017 to 2017.” Each year, CBO publishes a new outlook based on economic, spending, and revenue projections.

Here are the key takeaways, pulled from Hall’s statement and summary slides provided by the CBO:

#1: FASTER GROWTH UNDER TRUMP

CBO projects the U.S. economy will grow at 2.1% in the next two years, after growth at 1.8% last year. CBO also projects the unemployment rate will drop from its current 4.7% to 4.4% by the end of 2018.

However, CBO warns that long-term growth is sluggish, “mainly because of the slower growth projected for the nation’s supply of labor.” (Read: more retirements from baby boomers than new workers).

#2: DEFICITS ARE STEADY, UNTIL LATER THIS DECADE

CBO puts the federal budget deficit in 2017 at $559 billion, around 2.9% of GDP (slide 2). That’s much better than near-ten percent of GDP in 2009 (and above 8% in 2010 and 2011), but deficits are projected to creep upward in the 2020s (slide 3).

A 2016 analysis of Donald Trump’s campaign pledges found that he would add $11.5 trillion to the debt over 10 years – adding an average of $1.15 trillion to the deficit each year. It remains to be seen which Trump proposals go through, which ones are modified, and which ones fail in Congress.

#3: DEBT DRIVEN BY ENTITLEMENTS

CBO predicts that deficits for the next 10 years – and, consequently, the debt – will go up primarily due to spending on Social Security and Medicare:

…if current laws remained generally unchanged, budget deficits would eventually follow an upward trajectory—the result of three main trends:

-Strong growth in spending for retirement and health care programs targeted to older people, especially Social Security and Medicare

-Rising interest payments on the government’s debt

-and Modest growth in revenue collections.

At his confirmation hearing on Tuesday, Rep. Mick Mulvaney (R-SC) – Trump’s pick to head the Office of Management and Budget (OMB) – said entitlement cuts and tax hikes are on the table to mitigate the debt and deficits.