CBO: Deficit to decline in 2017 but rise in long term to historic level

WASHINGTON — The federal deficit is projected to decline in 2017 to $559 billion, down from $587 billion last year, according to projections released Tuesday by the nonpartisan Congressional Budget Office, but if current laws are not changed, the CBO predicts the deficit will rise to historic levels over the next decade.

The deficit increased in relation to the country’s economic output for the first time last year, and the CBO said the main drivers of deficit growth are Medicare and Social Security spending for seniors and interest payments on the debt, coupled with only modest revenue growth.

“Those accumulating deficits would drive debt held by the public from its already high level up to its highest percentage of gross domestic product (GDP) since shortly after World War II,” the CBO said.

The CBO report, which does not take into account the election or policies of President Trump, predicted modest economic growth will continue at an average annual pace of 2.1% through 2018, compared with last year’s 1.8% average and far short of the third quarter 2016 average of 3.5%.

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So-called slack in the labor market — the difference between potential and actual employment — is expected to disappear in the next two years, and the unemployment rate is projected to reach 4.4% in 2018, down from 4.7% earlier this month. And that means more competition for workers, which means higher wages.

The projected economic growth is considerably lower than what Trump has pledged if his policies are adopted. His campaign said annual growth would reach an annual average of 3.5% under his plan to revitalize the economy.

That plan includes cutting regulations, slashing the corporate tax rate and overhauling the tax code. Trump has said his administration would cut taxes “across the board” and working and middle-class households would receive a “massive tax reduction.” Essentially his campaign asserted the cuts would be paid for in part by eliminating loopholes, capping deductions and increased revenue through the economic growth.

He has also said he would cut federal spending, asserting at one point that “we will cut so much, your head will spin.” There are few details unveiled so far, however, for many of his plans.

At least one outside group seized on the deficit projections and urged Congress and Trump to change the currently unsustainable path. The Committee for a Responsible Budget noted that since last year, Congress increased 10-year deficit projections by $127 billion when it boosted funding for overseas contingency operations and emergencies.

“CBO's latest budget projections show the challenging fiscal situation facing President Trump and the new Congress,” the nonpartisan group said in an analysis Tuesday. “Lawmakers should not only not dig the hole deeper, something they did during the last Congress, but take the steps necessary to address the unsustainable trajectory of debt.”

The group’s president, Maya MacGuineas, who also leads the Campaign to Fix the Debt, said “policymakers should not go into debt denial with hopes that unrealistic growth and rosy projections will save the day.

“Ignoring these fiscal facts is like ignoring a coming storm,” she said. “Our nation will be drowning under red ink if policymakers do not reverse course now.”