The Congressional Budget Office’s (CBO) updated baseline projection lays out a troubled fiscal landscape.For Fiscal Year 2024, the federal budget deficit is now projected to hit $1.915 trillion. This is $408 billion (27 percent) higher than CBO expected earlier this year when its February outlook estimated a deficit of $1.507 trillion.
Four main factors contribute to this increase:
Student Loans: Deficits are $145 billion worse due to President Biden's executive actions to transfer student loan debt to the federal debt and ultimately taxpayers.
Deposit Insurance: There's an additional $70 billion shortfall because the Federal Deposit Insurance Corporation is not recovering payments from bank failures as quickly as CBO previously anticipated.
Newly Enacted Spending: Newly enacted legislation has added $60 billion to projected discretionary spending for FY 2024, mostly a result of the law providing supplemental funding for Ukraine, Israel, and the Pacific region. Upon passage, NTUF warned that the pricetag would be $31 billion higher than reported because of the higher debt costs.
Medicaid: Actual outlays for Medicaid are $50 billion higher than CBO projected in February..
Revenues amount to 17 percent of GDP, in line with the annual average since 2000, but outlays amount to 24 percent of GDP – trending higher than annual rates since 2000. Looking at the cumulative deficit over the 2025–2034 period, it is now projected to be $2.1 trillion larger (or 10 percent higher) than previously estimated. In addition to the four points above, the longer-term debt is driven by rising costs for mandatory programs and net interest payments.
Another warning sign from CBO is a slowing economy. Although inflation is lower than last year, they expect economic growth to decrease from 3.1 percent in 2023 to 2.0 percent in 2024, with higher unemployment. This is a worrying sign, especially with the scheduled expiration of the income tax provisions and the business expensing provisions in the Tax Cuts and Jobs Act of 2017.
The latest budget projections paint a sobering picture. With economic growth slowing and spending pressures mounting, it's clear that without serious fiscal reforms, we're on a collision course with unprecedented debt levels. Now more than ever, strategic policy decisions and fiscal discipline to reduce wasteful spending and implement pro-growth tax policies are imperative to steer our nation toward a more sustainable financial future.