Federal deficit to hit $3 trillion, Congressional Budget Office says
The Congressional Budget Office said Thursday it expects the federal deficit to hit $3 trillion for the 2021 fiscal year. That's $130 billion less than the deficit recorded last year amid the pandemic, but triple the deficit in 2019 before the pandemic struck. This year's deficit is projected to be the second largest since 1945, exceeded only by last year's deficit, the nonpartisan budget office noted.
The United States is projected to spend $6.8 trillion in the 2021 fiscal year while taking in $3.8 trillion.
"The economic disruption caused by the 2020–2021 coronavirus pandemic and the legislation enacted in response continue to weigh on the deficit," the report stated.
But despite the massive spending amid the health and economic crises caused by the coronavirus pandemic, the Congressional Budget Office revised its deficit projections for future years downward from what it had estimated earlier this year – thanks in part to a stronger economy.
While the estimates for the 2021 deficit are up $745 billion from what the office projected earlier this year, the CBO said Thursday that the cumulative deficit between 2022 and 2031 at $12.1 trillion is actually going to be down 1%, or $173 billion, from its previous projection.
"The effects of a stronger economy as well as technical changes … partially offset the deficit effects of recently enacted legislation," the report stated, referring to the American Rescue Plan, which passed in March. It said President Joe Biden's $1.9 trillion relief package increased the deficit by $1.1 trillion in 2021.
The agency estimates the deficit will go down to $1.15 trillion next year and sit at just below $800 billion in 2023 before starting to rise again in 2025.
The CBO projects that the federal debt held by the public will total $23 trillion by the end of the year, up from $21 trillion at the end of last year.
Revenues and spending are also expected to go up. The agency attributes the increase in revenues over the next decade to the stronger economy and therefore higher taxable incomes.
Looking at the economy overall, inflation is expected to rise sharply in 2021, the agency projects, before leveling off next year and remaining at 2.1% for several years, higher than the CBO's February estimates. Interest rates are also now expected to be higher than the CBO projected in February thanks to a "more positive outlook for economic growth."
The agency anticipates gross domestic product will increase 7.4% by the end of the year. The annual growth of real GDP is expected to average 2.8% from 2021 to 2025.
The agency also anticipates employment will grow quickly in the second half of the year, "reflecting increased demand for goods and services and the waning of factors dampening the supply of labor, including health concerns and enhanced unemployment insurance benefits," and employment will surpass its pre-pandemic level midway through next year. Unemployment should decline through 2022 and remain near or below 4% for several years, according to agency projections.
