New era of rising deficits has begun, CBO says

According to the CBO, about $43 billion of this year’s increase in the deficit will result from a shift in the timing of some payments that the government would ordinarily have made in fiscal year 2017, but that will instead be made in fiscal 2016 because October 1, 2016 – the first day of fiscal 2017 – falls on a weekend. It will account for 2.9 percent of the country’s gross domestic product compared with 2.5 percent in fiscal 2015.

“The budget deficit increases modestly through 2018 but then starts to rise more sharply, reaching $1.4 trillion in 2026”, the CBO report continues.

From 2016 to 2025, the CBO expects cumulative deficits of $8.5 trillion – $1.5 trillion more than it predicted in August. The complacency that lawmakers have shown about debt over the past few years must end so they can address the troublesome trajectory of deficits and debt.

The federal government’s budget shortfall is expected to increase again. The CBO said the rise was primarily due to the year-end budget deal that extended, and in some cases expanded, corporate and individual tax cuts, as well as busting spending caps.

“If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years, CBO projects”, the CBO report says. “Today’s CBO numbers clearly demonstrate that recent legislation combined with the relentless fiscal pressures of an aging population add up to steadily rising debt from this point forward”. Meeting past goals of passing a budget that reaches a surplus in 10 years would now require deeper cuts to politically sensitive benefits programs and perhaps military spending. Both of those factors raise how much needs to be spent on major safety net programs such as Medicare, Medicaid and Social Security. CBO expects a “substantial increase” in net interest spending.

The agency said its latest estimates call for real GDP to be almost 3% lower than previously expected a decade from now amid slower productivity gains. While still modest, it’s estimated to be 2.9% of GDP, up from 2.5% in 2015, a jump of 16%.