WASHINGTON -- A government report released Tuesday estimates that this year's budget deficit will rise to $544 billion, an increase over earlier estimates that can be attributed largely to tax cuts and spending increases passed by Congress last month.
The estimate from the Congressional Budget Office also sees the economy growing at a slower pace this year than it predicted a few months ago. It projects economic growth will slow to 2.7 percent this year; in last summer's prediction, it foresaw 3 percent growth in 2016.
Over the coming decade, the budget office predicts deficits totaling $9.4 trillion. That's up $1.5 trillion from its August estimate, with much of the increase mostly related to last month's tax legislation, which permanently extended several tax cuts that Congress typically had renewed temporarily. But slower economic growth in coming years and increased spending on veterans benefits and health care for the poor are other major factors.
Last year's deficit registered $439 billion, the lowest of President Barack Obama's time in office.
The deficit increase to $544 billion is a result of several factors, the Congressional Budget Office said, particularly the retroactive extension of tax cuts for businesses and individuals -- worth $650 billion over 10 years -- that had expired at the beginning of last year and additional spending for the Pentagon and domestic agencies that's a result of last year's budget deal.
In the past, Congress has generally extended tax provisions for a year or two to minimize their effect on the deficit over the long term. But leaders in both parties pushed to make some of the tax breaks permanent despite warnings from deficit hawk groups that such a deal would be a budget buster.
A timing shift of large payments is also at work. The current budget year ends Sept. 30.
In a sign of the tax deal's effect on the government's books, the report found that corporate taxes are expected to dip 5 percent in 2016. Among the corporate tax benefits Congress made permanent late last year are the research and experimentation tax credit and Section 179 business expensing.
The budget office also projected the deficit to increase to 2.9 percent of gross domestic product, from 2.5 percent last year.
It also warned that rising deficits are projected to increase overall federal debt held by the public to 76 percent of GDP, or $13.98 trillion, by the end of 2016, a rate "higher than it has been since the years immediately following World War II," according to the report.
The report is a summary of an annual report that is scheduled to be released Monday. The agency said the summary was released a week early to help congressional budget staff members who are currently drafting a fiscal 2017 budget resolution.
Long-term worries
The deficit issue largely has fallen in prominence in Washington in recent years, in large part because of its retreat from record highs in recent years. The deficit spiked at the end of President George W. Bush's administration and as Obama took office during a severe economic recession and the financial crisis. In fiscal 2009, it reached 9.8 percent of GDP.
At 2.9 percent of the size of the economy, most economists don't believe the deficit is very worrisome in the short term.
But the picture over the long run is more dire, the Congressional Budget Office says in its report. As deficits rise over the decade and the national debt grows, interest rates are likely to be forced up, economic growth could slow, and policymakers may have no choice but to raise taxes and cut spending more sharply than if they acted now.
Deficits would rise to about 5 percent of gross domestic product within 10 years, the budget office expects, and the resulting debt could cause big economic problems.
"Such high and rising debt would have serious negative consequences for the nation," it said.
The study could actually underestimate the deficit picture for the future. The agency's rules require that it assumes Congress sticks to current policies. But lawmakers in recent years haven't demonstrated they can stay within tight "caps" on spending for day-to-day agency operations, and there are still expiring tax cuts that Washington is likely to renew. Budget office estimates assume that the economy won't lapse into recession but will grow by at least 2 percent each year through 2020. The agency sees unemployment dropping to 4.5 percent by next fall.
The report hits as Republicans controlling Congress are girding for this spring's debate on the budget. Last year, Republicans adopted a nonbinding budget blueprint that promised a budget surplus by 2024 through sharp spending cuts and elimination of the Patient Protection and Affordable Care Act. But they did nothing to actually implement that budget plan other than trying to partially repeal the Affordable Care Act through a type of legislation that can't be filibustered by Senate Democrats. Obama vetoed the measure.
Last week, House Speaker Paul Ryan, R-Wis. -- who has promised to use the congressional agenda to draw an election-year case for awarding Republicans the presidency after eight years of Democratic control -- said efforts to tangibly cut spending won't be part of that agenda. He said the House will pass another nonbinding budget but won't seek to deliver real, binding spending legislation to the president.
"Clearly that's going to take a Republican president because this president has continued to kick the can down the road and I see no change in his behavior," Ryan told reporters last week.
Lawmakers and groups concerned about the government's budget problems responded Tuesday with calls for action.
"Our nation has a choice to make. We can stay the course and watch CBO's projections of slow growth and a rising mountain of debt become a reality," said House Budget Committee Chairman Tom Price, R-Ga. "Or, we can take positive actions and implement policies that will heal our economy, promote greater growth and job creation for more Americans, and put our nation's fiscal house in order."
Information for this article was contributed by Andrew Taylor of The Associated Press and by Kelsey Snell of The Washington Post.
A Section on 01/20/2016