During last week’s State of the Union address, President Obama boasted that the budget deficits have been cut. This is true. A combination of increased welfare and unemployment payments resulting from the economic downturn as well as the President’s “stimulus” bill jolted the deficit to $1.4 trillion in 2009 – $954 billion higher than in ’08. Over the following years, annual deficits gradually declined to $439 billion in 2015.
However, policymakers should not get complacent about restraining spending. As we wrote last October, “Deficits Getting Less Bad, But Trend Will Not Last”. That post was in response to the release of preliminary budget data on the close of Fiscal Year 2015 showing that the deficit was nearly $50 billion less than in 2014. Which is a good trend, but the Congressional Budget Office’s (CBO) 10-year budget outlook from that August showed that deficits would dip slightly for one more year in 2016 before returning to steady growth, reaching $1 trillion in 2025.
Today, CBO released its latest budget projection, and the new outlook is even worse. The short term deficit reduction CBO had previously forecast is gone – instead of dropping to $414 billion in 2016, it will rise to $544 billion.
Despite record levels of tax revenues, spending will continue to outpace federal income, but at a faster rate than in the last projection, coming in $1.56 trillion higher over the period from FY 2015 to 2025 than in the August outlook.
Comparing CBO’s August 2015 and January 2016 Budget Forecasts for FY 2015 through FY 2025 | |||
August 2015 Budget Outlook | CBO's January 2016 Budget Outlook | Difference | |
Total Deficit | $7.43 trillion | $8.99 trillion | $1.56 trillion |
Average Annual Deficit | $676 billion | $818 billion | $142 billion |
Deficit in FY 2025 | $1.01 trillion | $1.23 trillion | $218 billion |
With this revised and worsened projection, there should be no more self-congratulation and back-patting among politicians for reducing past deficits. It is time to re-focus on spending reduction going forward to get the mounting pile of debt – at $19 trillion and growing – under control.