The FY2014 federal budget deficit will be $66 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 and the administration’s economic projections, OMB now expects the FY2014 deficit to be $583 billion compared to $649 billion projection made when the FY2014 budget was released in March.
Measured as a share of total Gross Domestic Product (GDP), the deficit will decline from 3.7 percent in FY2014 (down from the previous estimate of 3.4 percent) to 2.2 percent by 2018. OMB projects the deficit share of GDP to rise to 2.6 percent through FY2022 before falling again to 2.1 percent by FY2024.
The lower deficit estimate in FY2014 is due almost entirely to lower estimated mandatory (-$53 billion) and discretionary (-$27 billion) spending. Total discretionary outlays are expected decline due to slower spending patterns for defense and nondefense programs and reduced expenditures for Overseas Contingency Operations (-$6 billion).
However, this improvement will be short-lived according to OMB estimates. While the FY2014-16 deficits are lower than OMB previously projected, deficits for FY2017-24 are estimated to be $600 billion higher than OMB’s March projections. This adjustment is due primarily to lower revenue (-$745 billion), resulting mostly from a lower economic growth forecast, offset slightly by higher projected outlays (+$31 billion) and lower interest payments (+$123 billion). Discretionary outlays are expected to stay essentially flat between 2017 based on administration long-term spending plans.
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 6.3 percent in 2014 and is projected to decline to 5.4 percent in 2017 and stay 5.4 percent through 2024. OMB expects the annual change in consumer prices (CPI-U) to be 1.8 percent in 2014, increase to 2.2 percent by 2017 and level off at 2.3 percent for the period 2018 to 2024.