Uncle Sam is seeing a surprising surge in federal revenue and waning pandemic spending that will drastically cut the federal deficit this year, delivering a brief respite before the pain deepens in the latter half of this decade, the Congressional Budget Office reported Wednesday.
The deficit this year will be about $1 trillion, down from the $2.8 trillion recorded in 2021, CBO said.
But Congress’s spending spree over the last year has added trillions of dollars to the longer-term deficit projection, adding to the fiscal drags of an aging population and higher interest costs. All told, the federal government will run $14.5 trillion in the red over the next decade, or $2.4 trillion worse than CBO projected in July.
At least for now, good news reigns.
Waning spending on the pandemic was always expected, but the government also is seeing a larger-than-expected surge in revenue, accounting for $800 billion of the $1.8 trillion improvements in the deficit from last year to this year, CBO said, though its analysts are still searching for the full explanation.
“In 2022, revenues in CBO’s projections reach their highest level as a share of GDP in more than two decades. They then decline over the next few years but remain above their long-term average through 2032,” said Phillip L. Swagel, CBO’s director.
“But outlays grow faster than revenues over that period, so deficits increase,” he added.
As it stands now, lawmakers have set the government on a path to spend 23.2% of gross domestic product over the next decade. That’s well above the 20.8% average during the previous 50 years.
Revenue, meanwhile, will average 18.1% of GDP, which is also higher than the 50-year average.
The gap between that 18.1% revenue and 23.2% spending is what produces the $14.5 trillion in cumulative deficits.
Debt held by the public — the total accumulation of those deficits — will rise from $22.3 trillion at the end of fiscal 2021 to nearly $36 trillion at the end of this decade, and it will top $40 trillion in 2032.
As a percentage of GDP, debt will drop from 100% last year to 96% next year, before beginning a steady rise to 110% in 2032. That would be the highest level Uncle Sam has ever recorded, CBO said.