The federal budget deficit is expected to increase in 2016 due mostly to a massive tax package enacted last month, a shift that Democrats worry could make it more difficult for Congress to agree on a spending plan this year.
The fiscal 2016 deficit is projected to increase by $105 billion to $544 billion in 2016, according to a report released Tuesday by the Congressional Budget Office, with the red ink continuing to rise over the next decade.
That new information could make it harder for Republican leaders to sell additional spending increases to conservative deficit hawks. With this in mind, congressional Democrats on Tuesday preemptively warned GOP leaders not to use the rising deficits as an excuse to walk away from an agreement reached last year to increase spending by $30 billion in 2017.
“I expect that Republicans will use today’s report and the additional $105 billion in deficit spending projected this year as an excuse to renew their push for painful austerity measures that target the most vulnerable in our society in their budget resolution,” said House Minority Whip Steny Hoyer (D-Md.) “We must not allow that to happen.”
Last year former House Speaker John A. Boehner (R-Ohio) reached a deal with fellow congressional leaders and the White House to set spending levels through 2017 in order to ease budget and spending negotiations ahead of elections this November. That deal included $50 billion in spending increases divided equally between defense and domestic programs for 2016 and an additional $30 billion in spending for 2017.
Many conservatives balked at these increases and voted against the appropriations package that passed last month arguing it would increase deficits.
Republican aides said there is no plan or push to back away from the spending agreement, which leaders are banking on to follow through on their promise to run an orderly appropriations process this year. They pointed to recent remarks from House Budget Committee Chairman Tom Price (R-Ga.) that the deal would be honored in the budget resolution that will be drafted in the coming weeks.
“I think the numbers from a discretionary standpoint have been agreed to for fiscal year 2017,” Price said at a Brookings Institution event last week referencing the top-line spending numbers included in the recent budget deal.
CBO on Tuesday projected that the deficit will rise for the first time since 2009 when measured against the size of the economy, which economists says is the best way to measure the government’s fiscal shortfalls. The 2016 deficit is expected to increase to 2.9 percent of economic output, or Gross Domestic Product (GDP), from 2.5 percent last year.
The official congressional scorekeeper said the increase is largely attributed to the year-end legislation, which extended a series of tax breaks for both businesses and individuals at a cost of $650 billion over 10 years. In the past, Congress has generally extended these tax provisions for a year or two to minimize their impact on the deficit over the long-term. But this year, 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.
The cumulative deficit over the next 10 years will be $9.4 trillion, CBO projects, which is up $1.5 trillion since the previous estimate that was released in August before the tax deal was signed into law.
In a sign of the tax deal’s impact 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.
Sensing the trouble the new deficit numbers could cause, Rep. Nita Lowey, the top Democrat on the Appropriations Committee, sent a letter Tuesday to Price asking him to not back away from the recent spending deal.
“I urge you to resist efforts to renege on this agreement with a budget resolution that reduces discretionary spending to a level that again diminishes our ability to sustain our economic recovery and give American families opportunities to thrive,” Lowey (D-N.Y.) wrote.
CBO 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 agency expects economic growth will slow to 2.7 percent next year, down from a 3 percent estimate in August, which could hurt the government’s fiscal outlook.
The report released Tuesday is a summary of an annual report that is scheduled to be released on Jan. 25. The agency said the summary was released a week early to help Congressional budget staffers who are currently drafting a fiscal 2017 budget resolution.