The federal budget deficit will rise to $1.4 trillion in fiscal 2023, the Congressional Budget Office estimated Wednesday, larger than previously projected and a reversal of the decline in deficits over the past few years as pandemic emergency spending wound down.
Additionally, the CBO projects that annual deficits will average $2 trillion from next year over the next decade or so. The deficit amounts to 5.3% of GDP in 2023 and is set to rise to 6.9% of GDP by 2033. The report notes that is significantly higher than the 3.6% of GDP that deficits have typically averaged over the past five decades.
The report highlights the magnitude of the fiscal challenges facing Congress and President Joe Biden, who has boasted about shrinking deficits in his first years in office.
“The cumulative deficit over the 2023–2032 period that we now project is $3 trillion larger than we projected last May, mainly because of newly enacted legislation and changes to the economic forecast that boost interest costs and spending on mandatory programs,” said CBO Director Phillip Swagel in a statement.
FEDERAL DEFICIT UP 80% THROUGH FIRST FOUR MONTHS OF FISCAL YEAR
The CBO also said that federal debt held by the public is projected to increase from 98% of GDP this year to 118% a decade from now. Federal debt held by the public is expected to rise to a whopping 195% of GDP in 2053.
“Over that period, the growth of interest costs and mandatory spending outpaces the growth of revenues and the economy, driving up debt,” Swagel wrote, noting the rise in mandatory spending is being fueled by growing costs for Social Security and Medicare.
The much-anticipated budget update includes several other details and projections.
The CBO projects that as the Federal Reserve continues to hike interest rates into this year as part of its fight against inflation, the unemployment rate will tick up. The CBO expects unemployment to rise through early next year. The nonpartisan budget office is also forecasting that inflation will not return to the Fed’s preferred 2% level until 2027.
Spending and the deficit are concerns that Republicans seek to confront head-on by using the debt ceiling as leverage with the Biden administration.
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After the United States hit the debt ceiling last month, Treasury Secretary Janet Yellen announced that the Treasury would take “extraordinary measures” to prevent the U.S. from defaulting on its obligations, but the Treasury only has a few months before those measures are exhausted.
The CBO projects that the government’s ability to borrow using such extraordinary measures will run out sometime between July and September, setting up a rough deadline for the coming showdown between House Republicans and the administration.