The U.S. government's budget deficit is widening sharply this year, the Congressional Budget Office said Thursday, as Republicans continue to push for a tax cut package on Capitol Hill.
The primary reason for the larger deficit is that the government is collecting less money in tax receipts than it expected.
The lagging receipts are probably one reason the CBO also projected Thursday that the Treasury Department could run out of money to continue paying the government's bill by early to mid-October if the debt ceiling — which is set by Congress — isn't increased by then.
Treasury Secretary Steven Mnuchin, asked at a news conference Thursday about Congress acting on the debt ceiling, said of Congress, "For the benefit of everybody, the sooner that they do this, the better."
Because the government runs a budget deficit — it spends more money than it brings in through revenue — the Treasury Department borrows money by issuing debt to cover the difference. But it can issue debt only up to a certain level set by Congress. Mnuchin has said that his agency has enough money to pay the bills through September. The CBO's estimate was slightly different, though it warned that Treasury had an $81 billion payment to military pension funds Oct. 3 that could be difficult if cash reserves run low.
The CBO said the reason the deficit grew more rapidly than expected this year is because tax receipts are expected to be only 1 percent higher than the level collected in 2016. It projected that individual income taxes are actually on pace to fall this year by 0.2 percent of GDP. It declined to give a reason, saying that it needed more time to analyze tax return data. Mnuchin has said that one reason tax receipts are lagging is because wealthier Americans are taking steps to delay tax payments in anticipation of a major overhaul of the tax code that cuts rates substantially. All told, the CBO said it expects the government to collect $3.315 trillion in revenue this year, a level that is $89 billion less than it projected in January.
Also adding to the deficit is an expected 5 percent increase in government spending, mostly triggered by programs that are on auto-pilot and don't need congressional authorization. For example, the CBO said there is a $40 billion increase in what the Education Department will pay on past student loans. There was little change in the estimated costs of the largest federal programs, such as Social Security and Medicare. Total government spending this year will reach $4.008 trillion, the CBO said.
The CBO estimated that the deficit would contract again in 2018 but then begin widening in 2019 and beyond, driven in part by costly government programs that provide benefits for older Americans, Social Security and Medicare.
The CBO projected that the cumulative deficit between 2018 and 2027 would reach $10.112 trillion. In January, it had estimated that this gap would be $9.426 trillion.
The CBO estimates come at a crucial moment for Congress, which is considering major changes to the government budget as well as an overhaul of the tax code and substantial changes to Medicaid.
House and Senate Republicans are considering a major change of the health-care system that would include a roughly $700 billion tax cut over 10 years, something that would further reduce government revenues. Many Republicans have argued that cutting taxes will spur more economic growth, and a major part of President Trump's economic agenda is a large reduction in corporate and individual income-tax rates.
His efforts, though, have run into resistance from Democrats who have argued that these tax cuts will not leave the federal government with enough money to fund federal programs, further widening the deficit and adding to the government's debt.
The CBO said that if Congress doesn't raise the debt limit by early to mid-October, it would “ultimately lead to delays of payments for government programs and activities, a default on the government's debt obligations, or both.”