The Congressional Budget Office in its most recent report on Jan. 28 projects that the federal budget deficit will reach $900 billion in 2019 and will exceed $1 trillion each year beginning in 2022. Over the coming decade, deficits will fluctuate between 4.1% and 4.7% of gross domestic product (GDP), well above the average over the past 50 years.
Still, the CBO’s projection of the deficit for 2019 is now $75 billion less—and its projection of the cumulative deficit over the 2019–2028 period, $1.2 trillion, is less than it was in spring 2018. That reduction in projected deficits results primarily from legislative changes — most notably, a decrease in emergency spending.
However, because of persistently large deficits, federal debt held by the public is projected to grow steadily, reaching 93% of GDP in 2029, its highest level since just after World War II and about 150% of GDP in 2049 — far higher than it has ever been. Moreover, if lawmakers amended current laws to maintain certain policies now in place, even larger increases in debt would ensue.
In the CBO’s projections, federal revenues are expected to rise to 16.5% of GDP in 2019, to 17.4% in 2025, and then grow more rapidly, reaching 18.3% of GDP near the end of the decade. The projected growth in revenues after 2025 is largely attributable to the scheduled expiration of nearly all the individual income tax provisions of the 2017 corporate tax cut.
On federal spending, the CBO said outlays are projected to climb from 20.8% of GDP in 2019 to 23% in 2029. The aging of the population and the rising cost of health care contribute significantly to the growth in spending for major benefit programs, such as Social Security and Medicare. And rising debt and higher interest rates drive up the federal government’s net interest costs. Growth in outlays is curtailed by statutory limits on discretionary funding in place for the next few years.
Overall, real GDP is projected to grow by 2.3% in 2019 — down from 3.1% in 2018 — as the effects of the 2017 tax act on the growth of business investment wane and federal purchases, as projected under current law, decline sharply in the fourth quarter of 2019. Nevertheless, output is projected to grow slightly faster than its maximum sustainable level this year, continuing to boost the demand for labor and to push down the unemployment rate.
After 2019, annual economic growth is projected to slow further to an average of 1.7% through 2023, which is below CBO’s projection of potential growth for that period. From 2024 to 2029, economic growth and potential growth are projected to average 1.8% per year, less than their long-term historical averages, primarily because the labor force is expected to grow more slowly than it has in the past.
To view the latest 165-page CBO economic report, click here.