The federal budget deficit will ease slightly to $468 billion this year, the Congressional Budget Office said Monday, but the agency warned that the mounting level of federal debt over the next decade would mean a tripling of interest payments and new spending constraints.
The projected deficit, equivalent to 2.6 percent of the size of the economy, would be the smallest since 2007 and close to the 2.7 percent average deficit over the past 50 years.
While those deficits would remain stable through 2018, the CBO warned that they would rise after that.
Interest payments are also poised to rise, both because of an expected rise in interest rates from the recent historic lows and because of a rising government debt, which the CBO said would hit 100 percent of GDP in 25 years. The interest payments alone are expected to hit $227 billion this year, more than double to $480 billion by 2019 and more than triple to $722 billion by 2024.
“The large amount of debt might restrict policymakers’ ability to use tax and spending policies to respond to unexpected future challenges, such as economic downturns or financial crises,” the CBO said.
Meanwhile, the CBO said that the cost of the Affordable Care Act continued to come in substantially below the March 2010 estimates. Because the program gets more expensive over time, the 10-year cost estimates have risen. But costs compared year by year remain lower.
In March 2010, the CBO and Joint Committee on Taxation projected that the ACA would cost the federal government $710 billion during fiscal years 2015 through 2019. The newest projects put the cost at just $571 million over those years, about 20 percent lower than the original estimates, the CBO said in its report. The latest projections for the cost in 2019 are $132 billion, or 23 percent less than the original projection.
The CBO said that the ACA had reduced the number of uninsured people by 12 million in 2014 and would by 19 million in 2015. It said that between 2016 and 2025 the legislation would reduce the number of uninsured by 24 million to 27 million people.
That would still leave 31 million people uninsured in 2025, about 30 percent of them “unauthorized immigrants,” about 10 percent in states that have chosen against expanding Medicaid coverage, 15 to 20 percent of whom would be eligible for Medicaid and choose not to use it, and about 40 to 45 percent of whom would have access to insurance but choose not to use it.
The CBO last revised its budget forecasts in August 2014, and the new figures were little changed. The agency reduced its estimates of outlays this year by $94 million, but it also lowered its estimate of revenues by $93 billion. It trimmed its projections for deficits over the next decade by $175 billion.
The CBO said it expects the economy to grow more rapidly than its potential, gradually eliminating slack in the economy by 2017. The CBO used data from early December and said more recent data – lower oil prices and faster economic growth than anticipated – would accelerate those estimates slightly.
It said that federal spending would rise from 20.3 percent of GDP in 2015 to 22.3 percent in 2025 largely because of the aging population and increases in Social Security and Medicare programs.
But it said that there would be “a significant projected decline in discretionary spending relative to the size of the economy.” Unless Congress chooses to alter spending caps in current budget law, that would result in a squeeze on a variety of programs including defense, education, homeland security and a host of other areas.