The Congressional Budget Office (CBO) projects the 2014 ”baseline” federal budget deficit will be $514 billion, $166 billion lower than in 2013 ($680 billion). If the 2014 deficit projection is achieved, it would mark the fifth straight year of deficit declines since the deficit reached $1.4 trillion in 2009.
The $166 billion improvement in the 2014 deficit results from a 9.1 percent increase in estimated revenue (+$255 billion), while outlays are projected to rise 2.6 percent (+$89 billion).
Higher revenue projections come from expiring tax provisions and improvement in the economy, CBO reports. Increased revenue projections are broadly based in 2014, ranging from higher individual and corporate income tax revenue to larger social insurance tax collections. This year will be the first full year after the expiration of the two-year temporary cut in the Social Security payroll tax rate.
The CBO projections show 2014 total outlays will be $3.543 trillion, up $89 billion from the previous year ($3.454 trillion). Total mandatory spending in 2014 ($2.116 trillion) is up $84 billion over 2013 and accounts for almost 95 percent of the total spending increase. Higher outlays for Social Security (+$38 billion), Medicare (+$18 billion) and Medicaid (+$33 billion), are offset slightly by declines in unemployment compensation.
CBO projects total discretionary spending will be $1.194 trillion in 2014, $7 billion lower than in 2013. Defense spending is expected to drop by $21 billion, primarily due to lower contingency operations costs. CBO projects spending on nondefense programs to increase by $14 billion, but 50 percent of that rise will come from lower receipts to the Federal Housing Administration.
The CBO report also includes deficit estimates for 2015 through 2024. These estimates show baseline deficits declining to $504 billion 2015 and then beginning to rise steadily as economic growth weakens. CBO expects baseline deficits to average about $900 billion for 2022-24.
Underlying CBO’s baseline deficit projections are economic assumptions that expect the economy to recover steadily in 2014 and continue that recovery over the next few years. The Gross Domestic Product (GDP) is projected to grow 2.4 percent in FY2014 and by an average of 3.3 percent between 2015 and 2017. After that, GDP growth drops to an average of 2.2 percent. CBO expects the annual unemployment rate to be 6.9 percent in 2014 and then decline to 5.9 percent in 2017. Then, the unemployment rate is projected to average about 5.6 percent through 2024. CBO projects the rate of inflation (as measured by the change in the Consumer Price Index) to stay below 2 percent through 2015 and then climb to 2.4 in 2018 and remain unchanged at that rate through 2024.