The federal budget deficit will fall to $845 billion in 2013 before rising again over the next decade as an aging population and soaring healthcare costs lead to an explosion in entitlement spending, the Congressional Budget Office reported Tuesday.
The budget deficit would fall below $1 trillion under President Obama for the first time in 2013 and would drop to $430 billion by 2015, according to CBO’s annual fiscal outlook.
But CBO’s long-term forecast projects that budget deficits will near the $1 trillion mark again by 2023, when it forecasts a $978 billion budget deficit.
The CBO report offers a fresh glimpse of the nation’s short- and long-term budget issues as the White House and Congress squabble over how to deal with a tiny fraction of the fiscal mess —$85 billion in scheduled cuts to spending slated to hit March 1.
“We have large projected deficits, a debt that will remain at a historically high share of GDP and will be rising at the end of the coming decade,” CBO Director Douglas Elmendorf said. “I think what that implies is that small changes in budget policy will not be sufficient to put the budget on a sustainable path.”
The number of seniors receiving Social Security and Medicare benefits will rise by 40 percent over the next decade, Elmendorf said.
He also warned that waiting to change entitlement programs could mean failing to realize savings before aging baby boomers join the programs in full force.
Compared to the size of the economy, the deficit in 2013 is much lower than in 2009, when Obama took office, the CBO noted. The deficit will be 5.3 percent of gross domestic product this year, nearly half the 10.1 percent of GDP in 2009.
The CBO report argues the “fiscal cliff” deal that also ended a two-year payroll tax cut will lower budget deficits but hurt economic growth in the short term, as it forecasts growth of just 1.4 percent in 2013.
CBO projects an unemployment rate above 7.5 percent through 2014, which would mark the sixth straight year with a jobless rate above that mark, the longest stretch in 70 years.
It says that growth would be 1.5 percentage points greater in 2013 if automatic spending cuts known as the sequester were turned off, if the 2 percentage point payroll tax break were reinstated and if tax increases instituted last month on wealthier taxpayers were voided.
Citing the report, House Budget Committee Chairman Paul Ryan (R-Wis.) said the nation needs to get serious about spending cuts now.
“The deficit is still unsustainable,” he said. “By 2023, our national debt will hit $26 trillion. We can’t let that happen.”
Ryan has pledged to pass a budget this year that balances in a decade. To do that, CBO’s report shows that Ryan would have to cut spending by $4 trillion. To get those cuts without touching defense or entitlement benefits, Ryan’s budget would have to cut the domestic agency budgets of the federal government by two-thirds, Elmendorf said.
Senate Budget Committee Chairwoman Patty Murray (D-Wash.) said the CBO report shows that more needs to be done to stimulate growth.
“Today’s CBO outlook confirms that the economic recovery remains fragile and we can’t afford to lose focus on job creation and economic growth,” she said.
CBO economists predict the economy will rebound strongly in 2014 with 3.4 percent growth. Unemployment would get down to 5.5 percent by 2018, CBO says, and the rebound from the 2007 recession would finally be complete in 2017.
The 2013 growth numbers are rosier than those CBO projected in August, when the fiscal cliff loomed and CBO saw the economy contracting by 0.5 percent in 2013.
CBO has projected budget deficits below $1 trillion under Obama before, but only if all of the Bush-era tax rates were allowed to expire. Assuming those tax rates expired, for example, the CBO last year projected the deficit would fall to $641 billion. Such a scenario was always implausible, however, given opposition from Obama and Republicans in Congress to raising taxes on the middle class.
The CBO budget baseline, which will form the yardstick used by lawmakers during this year’s fiscal debates, assumes that nearly $1 trillion in automatic spending cuts over nine years will be allowed to take place and that a radical cut to doctor payments under Medicare will be allowed to occur, among other assumptions.
Assuming Congress simply turns off the sequester cuts and passes a “doc fix” without paying for it, among other actions, a total of $9.5 trillion would be added to the deficit in the next 10 years.
The CBO report also had new projections on Obama’s healthcare reform law. The CBO projected that Obama’s signature healthcare law will cost about $1.3 trillion over the next 10 years — a slight increase of $164 billion over its projection from August. CBO concluded that healthcare reform, in spite of its price tag, will ultimately reduce the deficit because of revenue-raisers within the bill.
— Elise Viebeck contributed.
—This report was last updated at 8:22 p.m.