CBO Sees Wider 2021 Budget Gap, Smaller Deficits to Follow

The U.S. budget deficit will be wider than previously forecast this year because of a coronavirus relief package approved in December, but smaller over the next decade amid stronger economic growth, according to the Congressional Budget Office.

The nonpartisan agency on Thursday forecast a $2.26 trillion deficit in the fiscal year ending in September 2021, compared with a $1.81 trillion projection in the CBO’s prior outlook released in September 2020. The deficit was $3.13 trillion last year, and the largest as a share of the economy since World War II.

However, the agency’s forecast for deficits over the next decade was more sanguine, with the cumulative gap from 2021 to 2030 expected to be $345 billion smaller than in the previous forecast.

The estimates reflect the effects of the $900 billion stimulus legislation approved in December but not President Joe Biden’s latest proposals, which would add to the government ledgers.

The figures could provide additional fuel for Republicans pushing back on Biden’s plan. A CBO report earlier this week tying a minimum-wage hike to job losses quickly became a GOP talking point. Biden has argued that ultra-low borrowing costs offer an opportune time to spend, with government interest payments shrinking recently.

Policy Benchmark

The CBO stressed in its report that the outlook “is not intended to provide a forecast of
future budgetary outcomes; rather, it provides a benchmark that policy makers can use to assess the potential effects of future policy decisions.”

The CBO report is based on the agency’s economic assumptions released earlier this month, which includes a faster pace of GDP growth and inflation rising above 2% after 2023.

The fiscal year deficit forecast is based on estimated government revenue of $3.51 trillion, up $250 billion from the prior outlook. Spending was seen at $5.76 trillion, up $698 billion from the September forecast.

The forecast deficit would amount to 10.3% of GDP in fiscal 2021 and 4.6% next year, compared with 14.9% in 2020.

Debt held by the public will reach $22.5 trillion in fiscal 2021, or the equivalent to 102.3% of GDP, up from 100.1% in the prior year, according to the CBO’s latest projections. In the long term, debt will rise to about 107% of GDP in 2031; the previous CBO projection released in September saw the figure at a higher level in 2030.

©2021 Bloomberg L.P.

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