The FY2015 federal budget deficit will be $128 billion lower than the previous administration estimate, according to the Office of Management and Budget (OMB).

In its annual Mid-Session Review of the Budget, OMB now expects the FY2015 deficit to be $455 billion compared to $583 billion projection made when the FY2016 budget was released in February.  The deficit for FY2016 is also expected to decline by $45 billion, from $474 billion projected in February to $429 billion.

Measured as percentage of Gross Domestic Product (GDP), the deficit is expected to decline from 2.8 percent in FY2014 to 2.6 percent in FY2015. The deficit share of GDP will further decline to 2.3 percent in FY2016 and hold at around 2.5 percent through FY2020. Between FY2021 and FY2025 OMB projects the deficit share of GDP to remain steady at 2.7 percent.

Increased receipts (+72 billion) account for more than half the improvement in the FY2015 deficit. Estimated higher individual (+$69 billion) and corporate (+$20 billion) income tax receipts are slightly offset by lower economic assumptions (-$22 billion) affecting receipts. Also contributing to the deficit improvement in FY2015 are lower than expected discretionary (-$23 billion) and mandatory (-$13 billion) spending. Defense outlays in FY2015 are projected to be $5 billion less due to lower than expected spending patterns in investment accounts.

While the FY2015-17 deficit estimates are down from OMB’s previous projections, deficits for FY2018-25 are now estimated to be $209 billion higher than OMB’s February projections. This adjustment is due primarily to lower revenue (-$556 billion) as revised economic forecasts show lower economic growth that will lead to lower individual and corporate income tax receipts. Partly offsetting the projected decline in receipts are lower than previously expected expenditures (-$374 billion) driven by lower interest payments (-$303 billion) due to revised economic assumptions. Discretionary spending is expected to show little increase (about $18 billion, almost all defense) over the eight-year period.

The OMB projections are based on the administration’s economic assumptions and its proposed spending and revenue proposals. The unemployment rate is expected to average 5.3 percent in 2015 (down from 6.2 percent in 2014) and is projected to decline to 4.6 percent by 2017. The unemployment rate will rise again to 4.9 percent by 2021 and stay at that level through 2025. OMB expects the annual change in consumer prices (CPI-U) to be only 0.2 percent in 2015, but increase to 1.9 percent in 2016 and level off at 2.3 percent by 2020.