Congress’ official budget office on Monday raised its projection for the federal deficit in fiscal year 2015, in part because of bigger-than-expected writedowns of the government’s student loan portfolio.
The deficit is now projected to check in at $486 billion in 2015, according to the Congressional Budget Office, up $18 billion from its earlier projection in January.
That deficit would be slightly higher than the $483 billion recorded for 2014, although it would be slightly smaller as a share of the U.S. economy, at 2.7 percent, thanks to economic growth.
Of that $18 billion increase in the projected deficit, $10 billion is attributable to updates from the Department of Education on the costs of federal loan programs. The Obama administration’s budget released in February included a $22 billion write-down on the federal government’s student loan book, thanks in part to a pick-up in the number of student borrowers making use of programs promoted by Obama that limit their monthly payments as a share of their income.
The fiscal year 2014 deficit of $483 billion was the lowest since the financial crisis. The annual deficit peaked at $1.4 trillion in 2009.
The budget office sees the annual deficit declining to$455 billion, or 2.4 percent as a share of the economy, in fiscal year 2016. But then it is expected to grow again as the retirement of the Baby Boom generation adds to the federal government’s spending on retirement and healthcare. The shortfall is projected to eclipse $1 trillion again in 2025.
At that point, the federal debt would be 77 percent of total U.S. economic output, up from 74 percent today. Beyond the 10 year budget timeline, the budget office expects that the U.S. fiscal outlook would continue to deteriorate.
The Congressional Budget Office warned that government spending on retirement, healthcare, and interest on the debt would make it hard to prioritize government programs. In addition, it said in the report released Monday, high debt “increases the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.”
There was good news in the report, however. Although this year’s deficit is expected to be slightly larger, total deficits over the next 10 years are set to shrink by $431 billion. Total deficits over that period will amount to $7.2 trillion.
The smaller deficits are attributable mostly to lower anticipated health care spending. Government outlays on Obamacare exchange subsidies will shrink by $209 billion, and spending on health insurance for low-income families through Medicaid will drop by $59 billion. The budget office has significantly marked down its estimates for government spending on health care programs over the past few years as the growth in health care costs has slowed in the wake of the recession.
The government is also expected to fork out $114 billion less in interest payments over the 10-year budget window, partly because the deficits are supposed to be lower and also because the budget office expects the Treasury to save money by financing the debt with longer-term securities.
