WASHINGTON — Annual budget deficits have plummeted as the economy has recovered from the Great Recession, falling to a projected $506 billion in the fiscal year that ends in September, congressional budget analysts said Wednesday.
But the overall national debt has continued to swell, with the portion held by outside investors growing to 74 percent of the economy – the biggest debt burden since 1950.
The 2014 deficit projection issued Wednesday by the nonpartisan Congressional Budget Office is slightly higher than the agency forecast earlier this year, due in part to lower corporate tax collections. Corporate receipts are forecast to hit $315 billion this year, $36 billion less than previously forecast, in part because firms are withholding payments in hopes that lawmakers will extend a variety of expired tax breaks before the year is out.
CBO has also lowered its 10-year deficit forecast, predicting that the nation will rack up $7.2 trillion in new debt by 2024 rather than the $7.6 trillion previously forecast. Debt held by outside investors is now projected to hit $12.8 trillion by the end of the current fiscal year, and $26.6 trillion by 2024.
But that modest improvement is due almost entirely to technical changes in the forecast, primarily changes in the way CBO calculates interest payments on the debt. CBO now assumes interest rates will rise above their current, abnormally low levels, but will remain somewhat lower than they have in the past.
Those gains could be wiped out, however, once lawmakers get back to work this fall. Simply extending the raft of expired and expiring tax provisions could add nearly $900 billion to deficits by 2024, the CBO said. Lawmakers in both parties want to extend at least some of the provisions, with Senate Democrats seeking temporary extension and House Republicans calling for certain measures to be made permanent.
Meanwhile, if Congress eases scheduled budget cuts, known as the sequester, the red ink could swell by as much as $900 billion more by the end of the decade.
Even if lawmakers manage to avoid increasing deficits, Douglas Elmendorf, CBO director, said in a briefing for reporters that the status quo is hardly ideal.
Over the long run, “debt would be quite high by historical standards and on an upward path relative to the size of the economy, a trend that would impose substantial costs and could not be sustained indefinitely,” Elmendorf said.
In its economic outlook, CBO sharply scaled back its forecast for growth this year, predicting just 1.5 percent growth in calendar 2014. But the agency expects the unemployment rate – which clocked in at 6.2 percent in July – finally to dip below 6 percent by December, and to remain there for the foreseeable future.