by Sarah Curry
Director of Fiscal Policy Studies
The Congressional Budget Office (CBO) released an update to the budget and economic outlook for 2014-2024. According to the report:
The federal budget deficit has fallen sharply during the past few years, and it is on a path to decline further this year and next year. However, later in the coming decade, if current laws governing federal taxes and spending generally remained unchanged, revenues would grow only slightly faster than the economy and spending would increase more rapidly, according to CBO’s projections. Consequently, relative to the size of the economy, deficits would grow and federal debt would climb.
The report also addresses a shrinking budget deficit, but the continued growth of federal debt.
The federal budget deficit for fiscal year 2014 will amount to $506 billion, CBO estimates, roughly $170 billion lower than the shortfall recorded in 2013. At 2.9 percent of gross domestic product (GDP), this year’s deficit will be much smaller than those of recent years (which reached almost 10 percent of GDP in 2009) and slightly below the average of federal deficits over the past 40 years. However, by CBO’s estimates, federal debt held by the public will reach 74 percent of GDP at the end of this fiscal year—more than twice what it was at the end of 2007 and higher than in any year since 1950.
Certain spending programs and outlays of tax dollars are expected to increase, the largest will be an increase in spending for Medicaid and Social Security.
Spending is expected to rise by about 2 percent this year, to $3.5 trillion (see table below). Outlays for mandatory programs, which are governed by statutory criteria and not normally controlled by the annual appropriation process, are projected to rise by about 4 percent. That increase reflects growth in some of the largest programs—including a 15 percent increase in spending for Medicaid and a roughly 5 percent increase in spending for Social Security. In contrast, CBO estimates, net spending for Medicare will increase by only 2 percent in 2014, and spending for some mandatory programs will fall; in particular, outlays for unemployment compensation are expected to drop by nearly 40 percent, primarily because the authority to pay emergency benefits expired at the end of December 2013.
Congress continues to be in recess. Next week both the Senate and House are expected to be back to work, leaving them about three weeks to reach a budget deal or continuing resolution. The federal fiscal year begins on October 1, 2014.