The FY2016 federal budget deficit will be only $16 billion lower than the administration estimated in February, according to the Office of Management and Budget (OMB).
In its annual Mid-Session Review of the Budget, OMB now expects the FY2016 deficit to be $600 billion compared to $616 billion, the projection made when the FY2017 budget was released in February. The deficit for FY2017 is expected to be $441 billion, $63 billion lower than OMB’s earlier estimate of $503 billion.
Measured as percentage of Gross Domestic Product (GDP), the deficit is expected to be 3.3 percent in FY2016, unchanged from OMB’s previous projection. OMB expects the deficit’s share of GDP to begin declining in FY2017 (2.3 percent) and even further to 1.7 percent in FY2018. That share will hover around 2 percent from FY2019 to 2021 and stay in the 2.4 percent to 2.6 ercent range from FY2022 to 2026, according to OMB.
A $59 billion expected decline in receipts for FY2016 (-1.7 percent) is more than offset by a $75 billion decrease (1.8 percent) in expected expenditures. The lower estimate in revenue is primarily due to technical adjustments based on new tax collection data. Decreased estimates of both discretionary (spending from appropriations) and mandatory spending in FY2016 also reflect economic changes and technical re-estimates.
While OMB now expects cumulative deficits through 2026 to be 14 percent ($880 billion) lower than their February projections, annual deficits will still rise to $731 billion in 2026 from $600 billion in FY2016, totaling $5.2 trillion. Almost 60 percent of the revised total expenditure estimates (-$1.3 trillion) through 2026 are due to expected lower interest payments (-$770 billion), based on revised economic assumptions. OMB expects mandatory expenditures to decline by $597 billion during 2017-2026. Discretionary spending will increase by only $48 billion during the 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 4.8 percent in 2016 (down from 5.3 percent in 2015) and is projected to decline slightly to 4.7 percent in 2017. OMB expects the unemployment rate to stay in the 4.6 to 4.9 percent range through 2026. OMB estimates the annual change in consumer prices (CPI-U) to rise to 2.2 percent in 2017 from 1.2 percent in 2017, and level off at 2.3 percent by 2019.