The U.S. budget picture will likely worsen this year as companies wait to see what actions Congress will take on taxes in coming months, a report from the Congressional Budget Office showed on Wednesday.
The budget deficit for fiscal year 2014 ended Sept. 30 will be an estimated $506 billion, a slight increase from the $492 billion projected in April, based on lower-than-expected corporate tax receipts, the non-partisan CBO said.
Revenues to the government from company tax payments are expected to total $315 billion, down from an estimated $351 billion in April.
The bigger budget deficit comes because companies are deferring tax payments while they wait for Congress to decide whether to revive expired tax breaks, CBO officials said. Lawmakers are expected to take up legislation after the November elections to renew through 2015 a mix of 50 temporary tax breaks, known in Congress as "tax extenders," that expired at the end of 2013.
The extenders bill would continue tax relief for a wide range of activities, including auto race tracks, wind energy, school teacher expenses, Puerto Rican rum producers and multinational corporations.
Businesses see the extension of the tax breaks as necessary while Congress dithers on a broader tax overhaul.
"Congress must continue the now-expired tax extenders as an important bridge to comprehensive tax reform that will give businesses large and small the certainty they need to plan, grow and invest," said Carolyn Lee, senior director of tax policy at the National Association of Manufacturers.
Another corporate tax issue, the trend of companies moving to other countries to reduce their tax bills, has been in the spotlight in recent months as the administration weighs actions to discourage the practice. President Barack Obama has called the strategy "unpatriotic."
Burger King Worldwide Inc.'s plans to buy Canadian coffee and doughnut chain Tim Hortons Inc. is the latest high profile case of a U.S. firm seeking lower tax rates abroad. Investors and tax experts say the main reason for Burger King to move its domicile to Canada is to avoid having to pay double taxation on profits earned abroad, which the company would probably be subject to if it remains in the United States.
In addition, the U.S. Treasury Department is looking into increased use of the master limited partnerships, which are publicly traded business structures that pay no corporate income tax. The popularity of such structures could hurt future tax revenues, officials have said.
The budget deficit is expected to shrink to $469 billion in 2015, but then begin to rise as spending outpaces revenues, CBO said. Worsening deficits would result in growing levels of federal debt that would in turn weigh on federal spending options and economic growth, CBO warned.
The deficit is expected to rise to $960 billion in 2024 if current federal tax and spending laws remain unchanged, the agency added.
Some lawmakers and analysts argue that what matters is that the U.S. deficit remains steady in relation to the growth of the U.S. economy. U.S. budget deficits are expected to remain less than 3 percent of gross domestic product through 2018 but grow after that, rising to nearly 4 percent of GDP in 2022 as revenues fail to keep pace with spending, the budget agency said.
CBO said its projections are based on the assumption that the economy will grow at a 1.5 percent annual pace this year but then speed up to an annual rate of 3.2 percent in 2015 and 3.5 percent in 2016.
House Speaker John Boehner expressed concern about the sluggish growth forecast and called on congressional Democrats to do more to create jobs.
"I again call on Senate Democrats to stop standing in the way of growth and work with us to get our economy moving again," he said.
While the Republican-led House of Representatives has passed a number of measures aimed at spurring growth, many of them are controversial, such as bills to eliminate the Affordable Care Act or authorize construction of the Keystone XL pipeline that would transport crude oil from Canada, and are unlikely to become law.
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