Tags: Financial Markets | cbo | federal | debt | unsustainable

CBO: Surging Federal Debt Under Obama Unsustainable

Image: CBO: Surging Federal Debt Under Obama Unsustainable

Tuesday, 25 Aug 2015 04:41 PM

The U.S. budget deficit is likely to fall by $60 billion in 2015 due to strong revenue gains, the Congressional Budget Office said on Tuesday, enabling the government to stave off default without a debt limit hike perhaps through early December.

The CBO said it now estimates a $426 billion deficit for fiscal year 2015, down from its $486 billion forecast made in March. It also forecast a fiscal 2016 deficit of $414 billion, a reduction of $41 billion from the previous 2016 estimate.

The new forecast would bring the deficit to its lowest dollar amount since 2007, and as a 2.4 percent share of U.S. economic output, it would be below the 50-year average.

The deficit peaked at $1.4 trillion in 2009 and shrank to $485 billion in 2014.

The waning deficit may temper some demands in Congress for deeper spending cuts or weaken resistance to lifting the "sequester" spending caps on discretionary programs as lawmakers negotiate new spending legislation for the 2016 fiscal year, which starts on Oct. 1.

But Senate Budget Committee Chairman Mike Enzi, a Republican, warned against budget complacency.

"I would caution those who would use this report as an opportunity to take these short-term savings and push for more spending. If our nation is serious about balancing our budget and reducing America's debt, real, substantive budget reforms and savings will have to be on the table during any spending negotiations," the Wyoming Republican said in a statement.

The stronger-than-forecast tax collections mean that the U.S. Treasury's extraordinary cash management measures, employed since a debt limit extension expired in March, can stave off a federal default on payment obligations a bit longer.

The CBO previously said that the Treasury would likely exhaust all remaining borrowing capacity in October or November. In its latest guidance, it said that deadline will now likely come between mid-November and early December due to the additional revenues.

But the brighter near-term picture does not change the CBO's longstanding view that the still-growing federal debt is unsustainable. The CBO forecast that public debt would grow from about 74 percent of gross domestic product now to about 77 percent in 2025.

"If this debt continues to grow, it handcuffs the government if we go into another recession," new CBO director Keith Hall said, noting that in 2007, before the financial crisis hit, the U.S. debt-to-GDP ratio was about 38 percent.

"Starting at 74 percent would be a difficult thing to deal with in another downturn," he said.

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The U.S. budget deficit is likely to fall by $60 billion in 2015 due to strong revenue gains, the Congressional Budget Office said on Tuesday, enabling the government to stave off default without a debt limit hike perhaps through early December. The CBO said it now...
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Tuesday, 25 Aug 2015 04:41 PM
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