WASHINGTON—Providing political ammunition to both parties, Congress’ official budget analyst projected Tuesday that this year’s federal deficit will drop to $426 billion, the lowest shortfall of Barack Obama’s presidency.
But the annual summertime update by the nonpartisan Congressional Budget Office also contained words of warning. It cautioned that without action by lawmakers, a graying population and growing health care costs will push annual federal deficits upward again later this decade, spiking back above $1 trillion in 2025.
That would push the government’s total debt, accumulated over decades, to $27 trillion by 2025, or 77 percent of the country’s projected economic output that year. Economists say such amounts could drive up interest rates, boost government debt costs and hinder lawmakers from using tax and spending changes to ease the impact of future recessions.
“The growth in debt is not sustainable,” budget office chief Keith Hall told reporters. “You can’t predict tipping points, but at some point this becomes a problem.”
The budget office released its figures two weeks before lawmakers return from a summer break steering toward a budget clash. The Republican-led Congress has approved a blueprint that uses spending curbs on Medicare, Medicaid and other programs to claim a balanced budget in a decade, a plan Democrats have derided as harsh and unrealistic.
“I would caution those who would use this report as an opportunity to take these short-term savings and push for more spending,” said Senate Budget Committee Chairman Mike Enzi, R-Wyo. He said “real, substantive budget reforms and savings will have to be on the table during any spending negotiations.”
Maryland Rep. Chris Van Hollen, top Democrat on the House Budget Committee, said the report shows that Congress has made “important progress on rebuilding our economy and reducing our deficit.” He said Congress should make “necessary investments” in education and other programs and said serious negotiations will be needed to avoid a government shutdown this fall.
Senate Majority Leader Mitch McConnell, R-Ky., has repeatedly said partisan spending clashes will not lead to a government closure. But it could be hard for GOP leaders to win conservative votes for spending bills unless they cutting federal payments to Planned Parenthood. Secretly filmed videos have shown the organization’s officials discussing how they provide fetal tissue to medical researchers.
In March, the budget office projected a $486 billion deficit for this fiscal year, which runs through Sept. 30. The analysis said the $60 billion reduction was largely because collections of individual and corporate taxes have been higher than expected.
Annual deficits peaked at a historic high of $1.4 trillion in 2009 as the Great Recession reduced federal tax revenue and drove up government costs for helping low-income and jobless people. Deficits have dropped since then, falling to $485 billion last year.
This year’s $426 billion projected deficit, if realized, would be the government’s smallest since it was $161 billion in the red in 2007.
It would also mean that this year’s shortfall would be 2.4 percent the size of the overall economy, a proportion that many economists consider acceptable. On average over the last 50 years, annual deficits have been 2.7 percent of the economy’s size. The record 2009 deficit was 9.8 percent the size of the economy.
The budget office report lowered its projection for 2015 economic growth to a modest 2.3 percent, down from its 2.8 percent forecast in January and reflecting a weak first quarter performance by the economy. But it said the economy “is now on firmer ground,” and projected that growth will return to around 3 percent annually in 2016 and 2017 before dipping again.
The analysis also said even though the government has reached the legal limit of money it can borrow, the unforeseen extra revenue means the Treasury Department should be able to use accounting maneuvers to free up cash and avoid breaching that limit until mid-November or early December.
Treasury Secretary Jack Lew told Congress last month that he can take steps to prevent breaching the borrowing limit until late October or early November. Treasury can use bookkeeping maneuvers such as temporarily taking cash out of certain federal pension funds, money that is restored once Congress enacts a new debt ceiling.
Congress has fought frequently over extending the debt limit, with an unprecedented federal default a potential consequence should the parties deadlock.
