The US budget deficit is likely to fall by US$60 billion this year due to strong revenue gains, the Congressional Budget Office (CBO) said on Tuesday, enabling the government to stave off default without a debt limit hike perhaps through early December.
The CBO said it now estimates a US$426 billion deficit for this fiscal year, down from its US$486 billion forecast made in March. It also forecast a fiscal year deficit of US$414 billion next year, a reduction of US$41 billion from the previous estimate.
The new forecast would bring the deficit to its lowest dollar amount since 2007 and as a 2.4 percent share of US economic output, it would be below the 50-year average.
The deficit peaked at US$1.4 trillion in 2009 and shrank to US$485 billion last year.
The waning deficit may temper some demands in the US Congress for deeper spending cuts or weaken resistance to lifting the “sequester” spending caps on discretionary programs as lawmakers negotiate new spending legislation for the next fiscal year, which starts on Oct. 1.
However, Senate Budget Committee Chairman Mike Enzi, a Republican, warned against budget complacency.
“I would caution those who would use this report as an opportunity to take these short-term savings and push for more spending. If our nation is serious about balancing our budget and reducing America’s debt, real, substantive budget reforms and savings will have to be on the table during any spending negotiations,” he said in a statement.
The stronger-than-forecast tax collections mean that the US Treasury’s extraordinary cash management measures, employed since a debt limit extension expired in March, can stave off a federal default on payment obligations a bit longer.
The CBO previously said that the Treasury would likely exhaust all remaining borrowing capacity in October or November. In its latest guidance, it said that deadline is now likely to come between mid-November and early December due to the additional revenues.
However, the brighter near-term picture does not change the CBO’s longstanding view that the still-growing federal debt is unsustainable.
The CBO forecast that public debt would grow from about 74 percent of GDP now to about 77 percent in 2025.
“If this debt continues to grow, it handcuffs the government if we go into another recession,” CBO Director Keith Hall said, noting that in 2007, before the financial crisis hit, the US debt-to-GDP ratio was about 38 percent.
“Starting at 74 percent would be a difficult thing to deal with in another downturn,” he said.
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