The Congressional Budget Office is forecasting slightly smaller deficits than it did in January, after fully taking into account legislation passed in December. But the nonpartisan congressional scorekeeper still predicts an uptick in the federal deficit as a share of Gross Domestic Product this year for the first time since 2009.
The new baseline is likely to be the scoring benchmark for legislation in Congress for the foreseeable future. Fortunately, Congress has only a couple of must-pass deadlines to handle ahead of the November general election, making the prospects slim for further legislation that would have major budgetary impacts.
If House Republicans follow through on pledges to craft comprehensive policy packages this spring, the budget baseline will also be the standard against which those plans are measured.
Because the 10-year budget baseline did not change significantly, the March report shouldn’t alter much happening up on Capitol Hill. For example, GOP budgeters in the House have lamented that the January report showed a $1.5 trillion deficit gap from last year. For Republicans, that means achieving a balance within the 10-year window, the unwritten rule for GOP budgets, requires $1.5 trillion more in deficit reduction for the fiscal year 2017 budget than the 2016 budget. In this context, the $95 billion drop in the 10-year deficit as a result from CBO’s new update does not change all that much.
CBO predicts the fiscal year 2016 deficit will total 2.9 percent of GDP, up from 2.5 percent in 2015.
Oddly enough, CBO says that jump is at least half attributable to the calendar. The start of the fiscal year, Oct. 1, falls on a weekend this year, which will force payments due at the start of fiscal year 2017 to actually be paid in the final days of fiscal year 2016. Without that, CBO estimates this year’s deficit would only jump to 2.7 percent of GDP.
Ten years out, CBO estimates that growing deficits will boost the debt held by the public to 86 percent of GDP, more than twice the average for the past 50 years. CBO’s March report said debt at that level would have “significant negative budgetary economic consequences,” such as substantially increasing federal interest payments and reducing lawmakers’ ability to respond to sudden fiscal challenges.
The March CBO outlook projects a total federal deficit of $534 billion for fiscal year 2016, an amount that is 2 percent lower than it projected in January. The cumulative deficit projection 10 years out dropped by $95 billion, a 1 percent downgrade from January to $9.3 trillion.
The relatively small changes since January are the result of CBO’s full incorporation of the economic ramifications of a joint omnibus spending and tax provision bill passed in December. While the agency’s January report accounted for the direct budgetary of the tax bill, analysts did not have sufficient time to analyze how that legislation would also impact the economic environment, and so used an economic model that pre-dated the legislation.
A separate CBO report increased the estimate of costs associated with the Affordable Care Act’s insurance provisions over the next decade by $136 billion, to $1.4 trillion, since projections from March of 2015. Still, that revised cost is 25 percent lower than initial projections from CBO just before the ACA was enacted.
CBO said it expects 12 million people to enroll in the ACA health exchanges this year, down from the 21 million it forecasted in last year’s health insurance report. Yet the number of people with health coverage is expected to grow over the next decade, from 246 million to 253 million. The number of uninsured will also climb in that window, from 26 million to 28 million.