The baseline federal budget deficit for FY2014 is expected to be $506 billion, according to the Congressional Budget Office’s (CBO) latest report on the budget and economic outlook. CBO baseline estimates assume a continuation of current law for both expenditures and revenue.
This estimate is $14 billion more than CBO’s April estimate ($492 billion), but if realized would mark an improvement of over $170 billion from the 2013 deficit ($680 billion).
The slight increase in the projected FY2014 deficit reflects lower estimated revenue (-$24 billion), driven by a decline in estimated corporate income taxes, which will more than offset a projected $11 billion decline in expenditures.
For the period FY2015 to 2024, CBO expects the baseline deficit to be $422 billion lower than projected in April. The deficit will drop to $469 billion in FY2015 before beginning to increase again due to rising mandatory spending and growing interest payments on the debt, according to the CBO report. By FY2022, CBO projects the deficit will exceed $900 billion, unless changes are made to current law.
CBO expects the deficit as a percentage of Gross Domestic Product (GDP) to drop to 2.9 percent, significantly lower than the 4.1 percent recorded in 2013. The deficit share of GDP will remain at or below 3 percent until 2019 according to CBO. For the period 2020-2020, the measure will approach 4 percent because deficits will begin to grow at a much faster rate than GDP, CBO reports.
But, while the deficit as a share of GDP will stay under 4 percent through 2024, CBO expresses concern about the growing size of the total federal debt. CBO estimates that federal debt held by the public will be 74 percent of GDP by the end of FY2014 and could grow to 77 percent by 2024. This is over twice that recorded in 2007 and “higher than in any year since 1950.”
CBO worries that a growing national debt will have “negative consequences” on federal spending (increased interest payments) and economic growth, and would restrain the flexibility policymakers need to be able to deal with future challenges and crises.