High revenue shrinks U.S. deficit

Projected gap falls to $426B, but analysts warn of rebound

Then-Bureau of Labor Statistics Commissioner Keith Hall testifies on Capitol Hill in Washington in this October 2009 file photo. Hall is now the director of the Congressional Budget Office.
Then-Bureau of Labor Statistics Commissioner Keith Hall testifies on Capitol Hill in Washington in this October 2009 file photo. Hall is now the director of the Congressional Budget Office.

WASHINGTON -- An unforeseen flood of revenue is shrinking federal deficits to the lowest level of President Barack Obama's tenure, Congress' nonpartisan budget adviser said Tuesday.

But in a report, the analysts also warned that high shortfalls will roar back unless lawmakers act.

Two weeks before Congress returns from recess, the Congressional Budget Office said it expects this year's federal deficit to fall to $426 billion. That's $60 billion less than it expected in March, thanks to greater-than-expected individual and corporate income-tax collections, and less than a third of the record $1.4 trillion gap of 2009 as the government tried to fight off the recession.

White House spokesman Eric Schultz said Congress should prevent cuts in agency budgets and fund highways and other projects, saying, "We need to stay focused on this route and avoid self-inflicted wounds" such as a government shutdown.

Annual deficits should fall to $414 billion next year before an aging population and increasing health care costs create shortfalls that should sail past $1 trillion in 2025, the budget office said. That would push the government's accumulated debt that year to $21 trillion, or 77 percent of the size of the country's economy, threatening higher interest rates, surging government debt costs and other problems.

"That's 77 percent and growing," budget office director Keith Hall said. "This is an unsustainable path here for federal debt."

Republicans said the report underscored the need to curb spending. Congress has approved a blueprint claiming a balanced budget in a decade by squeezing savings from Medicare and Medicaid, and legislators want to retain caps on agency spending enacted in a 2011 budget deal.

"Without control over spending, our nation will lose control over its own future," said House Budget Committee Chairman Tom Price, R-Ga.

Democrats say such cuts are unneeded. Maryland Rep. Chris Van Hollen, the top Democrat on the budget panel, said lawmakers should make "necessary investments" in education and other programs and that "serious negotiations" will be needed to avoid a government shutdown this fall.

One major complication is conservatives' demands to halt federal spending on Planned Parenthood, whose officials were secretly captured in videos describing how they provide medical researchers with fetal tissue. Blocking that money would lead to likely clashes with Democrats and Obama.

The budget office lowered its projection for 2015 economic growth to a modest 2.3 percent, down from its 2.8 percent forecast in January and reflecting a weak first quarter. It projected that growth will return to around 3 percent annually in 2016 and 2017 before dipping again.

Those numbers, locked in last month, did not reflect the steep world financial market drops of recent days. Hall said those reductions had not yet weakened the world's economy, adding, "I don't feel too worried about it."

This year's $426 billion projected deficit would be the smallest since the $161 billion budget gap of 2007. The fiscal year runs through Sept. 30.

The analysis also said that, although the government has reached its legal borrowing limit, this year's unexpected extra revenue means the Treasury Department should be able to use accounting maneuvers to free up cash and avoid breaching that ceiling until mid-November or early December.

Treasury Secretary Jacob Lew told Congress last month that he can use bookkeeping moves to avoid exceeding the borrowing limit until late October or early November. Those include temporarily taking cash from certain federal pension funds.

Congress often tries to use the debt limit fight as leverage with the White House. Wary of angering voters, GOP leaders want to avoid an unprecedented federal default, which could result should the parties deadlock.

Hall also contradicted what has been dogma for some Republicans, saying, "The evidence is that tax cuts do not pay for themselves." Hall was appointed by GOP leaders.

Some Republicans say tax cuts generate economic growth that produces new revenue and outweighs the money the government loses by cutting taxes. That is contested by Democrats and many economists.

A Section on 08/26/2015

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