WASHINGTON – A congressional report released Monday predicts slightly smaller deficits both this year and over the coming decade, with lower spending on federal health care spending being the main reason.
A Congressional Budget Office report Monday said this year’s deficit will now be $492 billion, $23 billion less than previously estimated. Last year’s deficit registered $680 billion, the first year in President Barack Obama’s tenure that the deficit was less than $1 trillion.
The CBO estimated that over the coming 10 years the deficit will total $7.6 trillion, $286 billion less than projected in February. CBO predicts next year’s deficit will be slightly lower at $469 billion before commencing a steady upward march to the $1 trillion range by 2022.
The biggest factor is $165 billion less in spending on health insurance subsidies for policies sold through exchanges created under the Affordable Care Act. Those policies so far are proving to be less costly than the CBO originally thought, mostly because of tighter management of treatment options.
Medicare spending will also dip slightly, mostly because of lower-than-expected prescription drug costs.
Economists say the most important way to measure the deficit is to compare it to the size of the economy, and 3 per cent or below is commonly considered sustainable. This year’s deficit would represent 2.8 per cent of gross domestic product and the deficit would remain below 3 per cent of GDP through 2017.
Federal debt held by the public hit 72 per cent of GDP last year; it was 35 per cent of GDP as recently as 2007.
As it always does, CBO warned that historically high levels of debt pose a threat to the economy by crowding out business investment and threatening a spike in interest rates.