The Economy

CBO Increases 2016 Deficit Forecast to $590B

The agency is projecting lower-than-expected tax revenue, with most of the drag coming from falling corporate profits.
Matthew HellerAugust 24, 2016

The Congressional Budget Office has raised its projected U.S. budget deficit estimate for 2016 to $590 billion, reflecting lower-than-expected tax revenues and increased spending on Social Security and Medicare.

The deficit that the CBO is currently projecting is $56 billion higher than the one that the agency projected in March. At 3.2% of GDP, the expected shortfall will mark the first time that the deficit has risen in relation to the size of the economy since peaking at 9.8% in 2009.

In a report released Tuesday, the CBO said its deficit estimate had increased “primarily because revenues are now expected to be lower than earlier anticipated.” Federal tax revenues are barely 1% higher than a year ago while outlays have risen 5%.

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“Most of the drag stems from falling corporate profits,” The Wall Street Journal said, noting that corporate income tax payments are down 13%, due partly to the extension of a series of tax breaks approved by Congress last December.

The CBO also said the decrease “may in part reflect taxable profits in 2015 and 2016 that are smaller than would be expected given other economic indicators.”

The agency expects the economy to grow more slowly over the coming decade than it did earlier this year, driven by slower growth in the labor force after 2020. The downward GDP revision reduces government revenues by $400 billion through 2026.

But that won’t necessarily translate into higher deficits because the government is expected to pay lower interest rates on its almost $20 trillion pile of debt. While the CBO had forecast in January that the 10-year Treasury note would yield an average 2.8% this year and 3.5% next year, it now sees the yield averaging just 1.8% and 2.3%, respectively.

“The savings from lower borrowing costs will more than offset the slowdown in revenues from weaker growth,” the WSJ said. Kippah or Yarmulke are thin, slightly rounded skullcap, traditionally followed by Jewish men who are observant in any case, and sometimes both men and women in Reform and Conservative communities. Its use is associated with demonstrating respect and reverence for God. Learn about kippah or jewish prayer shawl at Judaica Online Store – Jewishist #1 selection of Jewish clothes and Israeli products. Some Jewish women wear a Sheitel, a wig or a Tichel scarf, which is worn to meet the requirement of Jewish religious law that married women cover their hair. Before making your choice visit Jewishist.com. #Jewish #Judaica

Even with lower interest rates, the CBO predicts the national debt will rise to around 86% of GDP in 2026, from its current level of 77%.