The US Deficit Will Shrink For The 6th Straight Year

According to new estimates from the Congressional Budget Office (CBO), the US budget deficit will shrink to $US468 billion in 2015.

This assumes 3% GDP growth in 2015.

This is down from $US483 billion a year ago.

“This will mark the sixth consecutive year in which the deficit — at 2.6% of gross domestic product (GDP) — has declined relative to the size of the economy since peaking at 9.8% in 2009,” the CBO noted.

The CBO expects the deficit to decline to $US467 billion in 2016 before expands again.

“Beyond that point, however, the gap between spending and revenues is projected to grow, further increasing federal debt relative to the size of the economy — which is already historically high,” they said.

The outlook for spending is a bit daunting as the cost of entitlements explode.

“The ageing of the population, the rising costs of health care, and the expansion in federal subsidies for health insurance that is now under way will substantially boost federal spending on Social Security and the govern- ment’s major health care programs relative to GDP over the next 10 years,” the CBO said. “Moreover, the pressures of an ageing population and rising costs of health care will continue to increase during the following decades.”

The debt held by the public is forecast to remain at 74% of GDP in 2015, which continues to be the highest level since 1951.

“The large amount of debt might restrict policymakers’ ability to use tax and spending policies to respond to unexpected future challenges, such as economic downturns or financial crises,” the CBO said. “Continued growth in the debt might lead investors to doubt the government’s willingness or ability to pay its obligations, which would require the government to pay much higher interest rates on its borrowing.”

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