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CBO: Deficit falls to $506 billion in 2014, but debt continues to rise

Annual budget deficits have plummeted as the economy has recovered from the Great Recession, falling to $506 billion in the fiscal year that ends in September, congressional budget analysts said Wednesday.

But the overall national debt held by outside investors has continued to swell to more than 74 percent of the economy -- the largest since 1950.

The new 2014 deficit projection, issued Wednesday by the nonpartisan Congressional Budget Office, is slightly higher than the agency projected earlier this year, due in part to lower corporate tax collections. Corporate receipts are forecast to hit $315 billion this year, $36 billion less than previously forecast, in part because many firms are withholding payment in hopes that lawmakers will extend a variety of expired tax breaks before the year is out.

The agency has also lowered its 10-year deficit forecast, predicting that the nation will rack up an additional $7.2 trillion in new debt by 2024 rather than the $7.6 trillion previously forecast. Debt held by outside investors is now projected to hit $12.8 trillion by the end of the current fiscal year, and $26.6 trillion by 2024.

But that improvement is due primarily to technical changes in the forecast, primarily changes in the way CBO calculates interest payments on the debt. CBO now assumes interest rates will rise above their current, abnormally low levels, but will remain somewhat lower than they have in the past.

Those improvements could be wiped out, however, once lawmakers get back to work this fall. Simply extending the raft of expired and expiring tax provisions could add nearly $900 billion to deficits by 2024, the CBO said. And if Congress eases automatic budget cuts, known as the sequester, the red ink could swell by as much as $900 billion more by the end of the decade.

Meanwhile, CBO sharply scaled back its forecast for economic growth this year, predicting just 1.5 percent growth in calendar 2014 -- a considerably more pessimistic forecast than the White House has offered at 2.6 percent. CBO predicts growth will finally exceed 3 percent in 2015.

CBO expects the unemployment rate, meanwhile, to dip below 6 percent this year and remain there for the foreseeable future.