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WASHINGTON (AP) — The Congressional Budget Office said Wednesday that it expects the federal budget deficit to drop by $188 billion this fiscal year to $1.5 trillion, a short-lived dip as the annual shortfall is likely to rise over the next nine years.
Two major factors are behind the decline in the budget deficit this year, each of them one-off events that reflect the challenge for lawmakers in trying to close the growing gap between tax revenues and spending.
First, the current fiscal year started on an October weekend, which caused its payments to be booked in fiscal 2023 without offsetting revenues.
Second, tax revenues are expected to increase because of better returns on financial investments and the collection of taxes from last year that the government postponed because of natural disasters.
Over the next decade, the cumulative budget deficits will be 7% smaller than the nonpartisan CBO forecast last year. That's mainly because of an agreement President Joe Biden signed last summer with Congressional Republicans that temporarily lifted the statutory debt ceiling in exchange for restrictions on government spending. But also, economic growth looks stronger than what was forecast and more people are working.
The report also projects that the nation's publicly held debt is set to increase from 99% of gross domestic product at the end of 2024 to 116% of GDP — the highest level ever recorded — by the end of 2034. Behind that increase are persistently large gaps between how much the government receives from taxes and how much it spends, a gap filled by borrowing from investors.
The CBO projections often contain uncertainties as laws can change or the economy can perform much better or far worse than anticipated. For instance, this time last year, the office projected the unemployment rate would jump to 4.7% in 2023, while the current unemployment rate is 3.7%.
The CBO anticipates that the unemployment rate will hit 4.4% at the end of 2024.
Republicans blame Democrats for spending too much during President Joe Biden’s tenure, while Democrats blame Republicans for the costs of tax cuts undertaken during Donald Trump’s presidency.
There are ongoing disagreements between Democrats and Republicans on the causes and possible fixes for the national debt, making it a perpetual campaign talking point that seldom leads to a sweeping solution.