The FY2015 baseline federal budget deficit is expected to be $426 billion, according to the Congressional Budget Office’s (CBO) latest Update to the Budget and Economic Outlook. CBO baseline estimates assume a continuation of current law for both expenditures and revenue.
This latest CBO estimate of the FY2015 deficit represents a $60 billion improvement from its March estimate and $59 billion lower than the FY2014 final budget deficit ($485 billion). If realized, this deficit would be the smallest since 2007.
The year-to-year improvement in the deficit results largely from higher estimated receipts (+$230 billion) from individual and corporate income taxes, which more than offsets an increase in expenditures (+$171 billion). The increase in expenditures from the previous year is the result of an almost $200 billion increase in mandatory spending, offset by somewhat lower discretionary spending and interest on the debt.
CBO expects annual deficits to stay at between about $415 billion and $455 billion through 2018 as the economy continues to improve. After 2018, deficits increase again reaching $1 trillion by 2023 as “significant growth in spending on health care and retirement programs and rising interest payments on federal debt would outpace growth in revenues,” according to CBO—unless changes are made to current law.
CBO expects the deficit as a percentage of Gross Domestic Product (GDP) to decline from 2.8 percent in 2014 to 2.4 percent in 2015 and continue to fall to 2.1 percent by 2017. After that the deficit share of GDP will stay below 3 percent until 2020. However, as the deficit begins to grow again in 2019, deficits will average close to 3.5 percent of GDP from 2020 to 2025.
The improved deficit picture in 2015 will probably affect the timing of a congressional decision to raise the debt ceiling, always a highly-charged proposition. Now, it appears rather than needing to make a decision by October or November (when Treasury will run out of so-called “extraordinary cash management measures), CBO says the decision point could be delayed until early December.