WASHINGTON — The federal budget deficit is projected to grow this year for the first time since 2009, an increase attributed mostly to tax cuts and discretionary spending increases, according to a government report.
The nonpartisan Congressional Budget Office (CBO), in a report released Tuesday, projects the deficit will add $105 billion to reach $544 billion for 2016. Over the next 10 years, deficits would add up to $9.4 trillion, a jump from the $1.5 trillion CBO estimated in August.
CBO projects the deficit at 2.9 percent of gross domestic product, an expected shortfall for 2016 that will “mark the first time that the deficit has risen in relation to the size of the economy since peaking at 9.8 percent in 2009.”
“If current laws generally remained unchanged, the deficit would grow over the next 10 years, and by 2026 it would be considerably larger than its average over the past 50 years,” according to the CBO report.
The rising deficit is likely to put pressure on lawmakers not to pursue large increases to defense discretionary spending, said Katherine Blakeley, a defense budget expert at the Center for Strategic and Budgetary Assessments.
“I don’t think you’re going to see realized the various calls for very significant defense increases —certainly not without an equally strong call on the Democratic side for equivalent non-defense spending,” Blakeley said. “Those battle lines over keeping a one-to-one ratio on defense and non-defense spending have been very strongly drawn.”
The report, in part, attributes the 2016 deficit growth to the two-year budget deal’s $32 billion increase for discretionary outlays, from 2015 to 2016. “Discretionary outlays for national defense — in their first increase in five years — will edge up slightly this year, and non-defense discretionary outlays will climb by 4 percent,” according to the report, a short summary of CBO’s annual report due for a Jan. 25 release.
The deficit is expected to climb to $1 trillion in 2023, dimming hopes that after the Budget Control Act (BCA) caps expire in 2021, there will be a significant relaxation of the pressure to limit defense spending. The $1 trillion threshold was a rallying cry for the sense of budgetary crisis that led to the BCA.
“If you’re in an environment where a lot of people are worried about the deficit and they want to take action on the deficit, you have to look at discretionary spending, unless you’re going to make big changes to the mandatory spending of Medicaid, Medicare and Social Security.”
While these dynamics increase the impetus to “make smarter choices” on defense, the deficit is not the only factor in national security resourcing decisions.
“It’s not a feasible thing to cut or raise the plateau of defense spending,” solely based on the deficit, she said. “Your financial picture as a nation informs how much you have to spend, but not the threat environment out there.”
There are a few caveats to CBO’s numbers. First, the growing deficit has been a fact of life for several years as Congress continued to extend tax cuts for corporations and individuals each year, but it appears to be a hike because it is only now built into CBO’s projections after Congress made the cuts permanent late last year.
Further, the projections also assume the interest rates on the federal debt will rise significantly after historic lows, and that the pace of the economy will quicken. If the economy grows more quickly, the debt will be a smaller share of the economy.
CBO projects that because growing deficits will drive up debt, this will increase the risk of a US fiscal crisis if investors become unwilling to finance the government’s borrowing needs. Lawmakers also would have less flexibility to use tax and spending policies to respond to unexpected challenges, and the likelihood of a fiscal crisis in the US would increase.
“Such high and rising debt would have serious negative consequences for the budget and the nation,” the report says.