Economy

Federal Budget Deficit Projected at Multiyear Low in 2015

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Source: Thinkstock
The U.S. Congressional Budget Office (CBO) released its Budget and Economic Outlook: 2015 to 2025 Monday morning. The non-partisan CBO now estimates that the federal budget deficit in fiscal year 2015 will total $468 billion, the lowest total since 2007. The fiscal 2014 deficit totaled $483 billion, well below the $514 billion prediction that the CBO released at this time last year, but in-line with the agency’s August 2014 revisions.

The estimated 2015 deficit represents about 2.6% of U.S. GDP, slightly lower than the average 2.7% budget deficits of the past 50 years. For 2016 and 2017 the CBO projects a deficit of 2.5% in each year and a deficit of 2.6% again in 2018.

After that deficits are projected to climb to 4% by 2025. Over the period from 2019 through 2015 the CBO cites four factors contributing to rising deficits:

  • Retirements among the baby-boomers
  • Expanded federal subsidies for health insurance
  • Rising health care costs per beneficiary
  • Rising interest rates on the federal debt

Social security payments will rise faster than the economy. So will costs for Medicare, Medicaid, and Obamacare and net interest payments. The CBO bases these estimates on real GDP growth of about 3% in the next two years and 2.5% in 2017. Beyond that GDP increases at slightly more than 2%.

Inflation is expected to remain at or below 2% through 2025 while interest rates on 10-year Treasury notes are projected to rise to 4.6% from around 2.5% currently.

The CBO’s estimate of the national unemployment rate drops to 5.3% by the end of 2017, a faster rate than the agency had forecast a year ago. That’s good news and not-so-good news. The good news is that more people will have jobs; the not-so-good-news is that as GDP and employment rise the slack in the economy disappears and the country approaches the natural rate of unemployment. Fewer available workers means businesses have to pay more and productivity falls.

CBO’s deficit estimates are based on the assumption that current tax laws and spending will remain unchanged and are built on the agency’s economic forecast.

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