US CBO forecasts slightly smaller $1.5 trillion deficit for 2024
The US Congressional Budget Office on Wednesday projected a slightly smaller $1.507 trillion federal deficit for fiscal 2024 as increased revenues from stronger growth and employment offset higher costs for clean energy tax credits and public debt interest.
The CBO said the deficit would dip this year from $1.695 trillion in fiscal 2023, but resume its march upward to $1.772 trillion in fiscal 2025, hitting $2.579 trillion in fiscal 2034.
The figures are based on current tax and spending laws and assume that individual tax cuts passed by Republicans in 2017 expire at the end of 2025, pushing revenues higher in later years.
The CBO also projected a slightly smaller cumulative 10year deficit, to $20.016 trillion for the fiscal 2025-2034 period, compared with last year’s estimate of a $20.314 trillion deficit for 2024-2033.
The CBO said a key reason for the lower longer-term deficit projections was legislation passed last June to impose caps on discretionary spending programmes, which cut the 10year deficit by $2.6 trillion from projections a year ago.
CLAIMING CREDIT
Overall, the report shows little shift in the US budget trajectory as Congress struggles to reach consensus on issues such as aid for Ukraine and Israel as well funding for government agencies as a new government shutdown deadline looms in March.
But both Republicans and Democrats sought to take credit for the slightly improved fiscal outlook.
“Today’s CBO baseline reveals that when Republicans stand firm on fiscal responsibility and force Congress to reduce spending, America’s fiscal outlook improves,” House of Representatives Budget Committee Chairman Jodey Arrington said in a statement, adding that his fellow Republicans’ insistence on spending cuts had strengthened US balance sheets.
Senate Budget Committee Chairman Sheldon Whitehouse, a Democrat, attributed the improvement to economic growth sparked by President Joe Biden’s economic polices.
“Today’s CBO baseline confirms that Democrats’ investments to jumpstart our recovery and promote a stronger economy worked: CBO is now projecting faster economic growth, lower deficits and lower unemployment,”
Whitehouse said. MORE WORKERS, TAXES
“In our projections, the deficit is also smaller than it was last year because economic output is greater, partly as a result of more people working,” CBO Director Phillip Swagel said in a statement.
The nonpartisan budget referee agency is projecting an increased workforce of 5.2 million people, mostly due to a surge in net immigration, which will boost economic output by $7 trillion and tax revenues by $1 trillion over the 2023-2034 period, he said.
It projected that US full-year economic growth would fall to 1.8% in calendar 2024 from 2.5% in 2023, but then climb back above 2% in 2025 and 2026 in response to interest rate cuts by the Federal Reserve later this year.
The CBO also highlighted rising net interest costs that are eating up a larger share of the budget. Net interest costs are expected to reach $870 billion, or 3.1% of GDP in 2024, but nearly double by 2034 to $1.628 trillion, or 3.9% of GDP.
HIGHER EV TAB
The CBO revised sharply upward its projections of the cost of the Biden administration’s clean energy tax credits, as well as the impact of planned changes to vehicle emissions standards expected to accelerate the shift to electric vehicles and cut gasoline tax revenues.
Together these changes will raise the deficit by $25 billion in fiscal 2024 and $428 billion over the 2024-2033 period, the CBO said. The estimate would more than double the Joint Committee on Taxation’s estimate of the 2022 Inflation Reduction Act’s clean energy tax credits costs of $369 billion over 10 years.
It said higher outlays and reduced revenues related to clean vehicles would total $224 billion, while those related to investment tax credits for battery manufacturing and other clean energy technologies would total $204 billion.