The US budget deficit is expected to shrink in the current fiscal year but climb after 2017 as spending mounts on health and retirement benefits, a government agency said Monday.
The Congressional Budget Office, the independent agency that provides economic and budgetary analysis to Congress, projected the deficit in fiscal 2015, which ends September 30, would total $468 billion, or 2.6 percent of gross domestic product, the smallest shortfall relative to GDP since 2007.
In 2014, the federal government deficit had hit its lowest level in six years at $483 billion, falling below 3.0 percent of GDP for the first time since 2007.
The deficits have been shrinking as the economy pulls out of the deep 2008-2009 recession, supported by trillions of dollars of public aid and sharp government spending cuts. Gross domestic product increased a robust five percent in the third quarter, and although that pace was expected to moderate, the US economy remains a relative bright spot in the slowing global economy.
The positive deficit news came as President Barack Obama, in the final two years of his second term, faces for the first time a Congress controlled by opposition Republicans and a continuation, if not escalation, of fierce budget battles.
Obama’s Democratic Party sees government spending as an engine of growth, while Republicans want to shrink the government and slash taxes to spur activity.
In his State of the Union speech last week, Obama called for more spending on infrastructure, education and tax credits to keep the economy on a solid growth track, laying down a direct challenge to Republicans.
Whoever wins the 2016 presidential elections will face a steadily growing deficit from 2017 through 2025, to $1.1 trillion, or 4.0 percent of GDP, according to the CBO’s 10-year budget and economic outlook report.
The nonpartisan CBO pointed out that its estimates are based on the assumption that current laws governing spending and taxation will remain broadly unchanged.
The reason the deficits would swell is in large part due to the increased spending on social safety-net programs that eclipses the economy’s growth pace, the CBO said. The government will have to spend more on health care insurance, reflecting the “Obamacare” reform that Republicans vow to roll back.
The tidal wave of aging baby boomers hitting retirement also will lift spending on social security benefits.
The CBO predicted that federal government debt will rise to 74 percent of economic output by September 30, its highest level since 1950.
In a bright note, revenues were projected to rise “significantly” by 2016 on the back of the ongoing expansion in the economy and the expiration of several tax breaks.
The economy was poised for “a solid pace” of growth in 2015 and in the next few years as consumer spending, business investment and home buying pick up, the agency said.
Year-over-year, GDP growth was estimated at 3.0 percent at the end of 2015 and 2016, slowing to 2.5 percent in 2017.