The Congressional Budget Office has revised downward its federal deficit projection for 2017 but continues to forecast that the shortfall will reach 5% of gross domestic product by 2027.
According to its latest Budget and Economic Outlook, the CBO’s estimate of the 2017 deficit is now $559 billion, or 2.9% of GDP, down from its August 2016 estimate of $594 billion.
Both revenues and outlays are expected to be lower, revenues by $17 billion, mostly as a result of lower receipts from individual income taxes, and outlays by $52 billion, mostly because of reductions in mandatory spending.
In CBO’s baseline projections, budget deficits will remain below 3.0% of GDP through 2019. But subsequently, continued growth in spending — particularly for Social Security, Medicare, and net interest — would outstrip growth in revenues, resulting in larger deficits and increasing debt.
By 2027, the deficit would reach $1.4 trillion, or 5% of GDP. Debt held by the public would rise from 77% of GDP ($15 trillion) at the end of 2017 to 89% of GDP ($25 trillion) by 2027.
“Those accumulating deficits would drive debt held by the public from its already high level up to its highest percentage of gross domestic product since shortly after World War II,” the CBO said.
Beyond the 10-year period, the CBO continued, if current laws remained in place, “the pressures that contributed to rising deficits during the baseline period would accelerate and push debt up even more sharply. Three decades from now, for instance, debt held by the public is projected to be nearly twice as high, relative to GDP, as it is this year — and a higher percentage than any previously recorded.”
The CBO projects that the economy will grow at an average rate of 2.1% in the coming years, raising income tax revenue, but not enough to offset rising entitlement costs from an aging population.
“The projections could be a factor in decisions by the Trump administration and a Republican Congress to reform the tax code, repeal and replace Obamacare and invest in infrastructure,” The Hill reported.