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Corrects to note CBO assumes 2017 tax cuts do expire on schedule, which would increase revenues and reduce the deficit.
Annual U.S. federal budget deficits — the difference between what the government takes in and what it spends each year — are expected to remain close to $1 trillion or more over the next 10 years, the Congressional Budget Office said Thursday.
Congress’ nonpartisan budget arm reported that the fiscal deficit was expected to fall this year, from $3.13 trillion in 2020 to $2.26 trillion in 2021, and continue a path downward until 2024 to $905 billion. But after that it would begin rising again and hit almost $2 trillion in 2031, CBO said.
The forecasts are likely overly optimistic, as they are based on current law and do not take into account plans by Democrats in Congress to pass a $1.9 trillion coronavirus economic-aid package in the coming weeks. The CBO’s forecast also assumes temporary tax cuts put into place in 2017 by Republicans will expire as scheduled, which would increase revenues and shrink the deficit.
The 2020 and 2021 deficits will be the largest and second-largest deficits in dollar terms, and the two largest deficits in relation to the size of the economy, since 1945.
“Those deficits, which were already projected to be large by historical standards before the onset of the 2020-2021 coronavirus pandemic, have widened significantly as a result of the economic disruption caused by the pandemic and the enactment of legislation in response,” the CBO said.
Federal debt, which some Republicans have started saying has hit worrisome levels and will likely be the center of attention later this year when the current suspension of the government’s debt limit expires, would hit 102% of gross domestic product in 2021, up slightly from 2020’s level.
In 2031, the last year of the CBO’s forecast, the debt-to-GDP level would rise to 107%, eclipsing the record seen in World War II.
“The national debt will hit a new record and will grow indefinitely from there. If that doesn’t concern you, you aren’t paying attention,” said Maya MacGuineas, president of the anti-deficit Committee for a Responsible Federal Budget, in a statement.
Democrats and many economists say concerns about the deficit should take a back seat to the need to keep the economy from falling back into recession as the pandemic weighs on economic activity. They also point to low interest rates that have kept the borrowing burden relatively low even as the amount of debt has expanded.
“The down payment Congress passed in December stopped some of the bleeding, but without robust action, the recovery is going to be long and painful,” said Senate Majority Leader Chuck Schumer at a press conference Thursday.
The Democratic budget resolution adopted by the House and Senate projects a $3.8 trillion deficit for 2021, though it is unlikely that will come to pass, as it is less than $1 trillion through the first third of the budget year. Democrats also said the budget was approved only to give them the ability to push through their recovery legislation on a party-line basis, if needed, and a more substantive budget reflecting their priorities will be considered this summer.
“Do lower interest rates give us some more fiscal space? Certainly. But we’ve used that space to enact COVID relief. Even with rock-bottom interest rates, CBO projects interest costs are on course to reach their highest share of the economy since the 1990s,” MacGuineas said.
The CBO in the report reiterated its upbeat forecast for the economy, even without any further rounds of economic aid. It projected GDP to rise at a 4.6% pace in 2021, which would be the biggest year-over-year gain since 1999.
The size of the economy would reach its prepandemic level in mid-2021, but the job market would take longer to recover. “In CBO’s projections, the unemployment rate gradually declines through 2026, and the number of people employed returns to its prepandemic level in 2024,” the report said.
