Driven in large part by legislation that renewed a number of expired tax breaks and made them permanent, the Congressional Budget Office says that fiscal year 2016 will be the first in which the federal deficit has risen as a share of the economy as a whole since 2009.
In a report issued Monday, the CBO predicted that the U.S. would end 2016 with a deficit of $544 billion, which is $105 billion more than the 2015 deficit and $130 billion more than CBO had forecast in August. The deficit will represent 2.9 percent of Gross Domestic Product.
Part of the reason why this year’s deficit will be higher than last is an accident of timing. Payments that would normally be made in the first days of fiscal 2017 will instead be made at the end of 2016 because the first day of the new fiscal year falls on a weekend. However, that only accounts for about $44 billion, or less than 10 percent of the total.
The deficit projected by CBO would increase debt held by the public to 76 percent of GDP by the end of 2016, the agency estimates—about 2 percentage points higher than it was last year and higher than it has been since the years immediately following World War II.
On its current trajectory, according to CBO, the deficit begins to increase “sharply” after 2018, spiking from 2.9 percent of GDP to 4.9 percent by 2026. The amount of federal debt held by the public, compared to GDP, will also spike, to an estimated 86 percent over the same time period.
In the near term, at least, the CBO predicts a relatively strong economy.
“CBO expects that the economy will grow more quickly in 2016 and 2017 than it did in 2015, when real (that is, inflation-adjusted) GDP grew by an estimated 2.0 percent,” the report finds.
However, it adds, “The agency anticipates moderate economic growth in subsequent years, constrained by relatively slow growth in the labor force.”