Legislation passed last year will expand the federal deficit to $544 billion for fiscal 2016, the Congressional Budget Office projected Tuesday, reversing a trend of shrinking government shortfalls.
The office, the nonpartisan agency that provides analysis for Congress, had previously estimated that the deficit would be $414 billion.
The deficit was $439 billion in 2015. It has shrunk from trillion-dollar-plus levels in the wake of the financial crisis, an improvement that President Obama and his advisors have boasted of in recent years.
If the agency’s projections are correct, fiscal year 2016 would be the first in six years to see the deficit growing as a share of the economy, the CBO said. It would be 2.9 percent of gross domestic product.
Over the next 10 years, annual deficits will be $1.5 trillion larger than previously estimated in aggregate, the budget office said, a result of both new legislation and lowered expectations for economic growth, as well as technical changes to the forecast. At the end of the 10-year budget forecast, CBO sees the federal debt, which is the accumulated deficits, at 86 percent of the U.S. economy in 2026, versus its earlier projection of 77 percent in 2025.
That level of debt would entail “serious negative consequences for the budget and the nation,” the budget office said, including a higher risk of fiscal crisis.
Tuesday’s update from the budget office is the first since August. Since then, Congress passed several bills with significant fiscal implications that the office said largely explain the growing deficit, including the omnibus spending bill signed in December, a package of tax breaks that costs the government $680 billion on paper and a reform of the way Medicare pays doctors.
“For the most part, it’s really it’s just sort of a relatively straightforward cause-and-effect,” said Loren Adler, research director for the non-profit group Committee for a Responsible Federal Budget. “Last year lawmakers kind of took the pedal completely off of any fiscal consolidation and backtracked a lot” on the idea that new legislation should not add to deficits.
Of the $105 billion increase in the annual budget shortfall, $43 billion was the result of a shift in the timing of payments, the budget office said, because the first day of fiscal year 2017, Oct. 1 2016, falls on a weekend.
Federal spending is supposed to grow by 6 percent to $3.9 trillion in 2016, thanks to both the added spending from December’s budget deal and growing spending on entitlement programs like Social Security and Medicare, as well as added interest on the federal debt.
Revenues, meanwhile, will grow at a slower rate of 4 percent, thanks in part to the tax legislation that will lower corporate taxes.
That legislation made permanent a number of tax breaks that had previously been extended on a temporary basis year after year, although it also included new measures. Many lawmakers in both parties have argued that making the breaks permanent does not lose money for the government, since that money never would have been collected anyway. By that argument, the latest budget numbers reflect a more accurate account of those tax breaks, rather than actual lower tax revenues.
