The annual deficit has been on a downward trajectory since 2009. But that streak could end this year.
The Congressional Budget Office now projects this year’s deficit will rise to $590 billion, or 3.2% of the economy. That’s up from $438 billion, or 2.5% of GDP in 2015.
The majority of that increase is due to slower-than-expected growth in the first half of the year and lower-than-expected revenue coming into the federal government.
But the CBO expects economic growth to pick up for the second half of 2016 and all of 2017.
While that will temper annual deficits for the next couple of years, the agency estimates they’ll hit 4.6% by the end of the decade. That’s primarily because growth in spending will start to outpace economic growth in a few years thanks to an anticipated jump in so-called mandatory spending and interest payments on the debt.
The biggest chunk of mandatory spending is the automatic payments of Medicare and Social Security benefits, which are growing as the population ages and health costs rise. By contrast, so-called discretionary spending — which basically pays for most other things (education, defense, cybersecurity, national parks, infrastructure scientific research, etc.) — is on track to fall to its lowest level as a share of the economy since 1962.
Interest on the debt, meanwhile, is expected to double as a share of GDP in the next decade both because of a projected rise in interest rates and growth in the accumulation of federal debt held by the public.
The CBO projects that debt will grow from 77% of GDP this year to nearly 86% by 2026.
Barring any changes to current law, the debt is expected top its World War II peak within 20 years, again due to the aging of the population, higher health care costs and higher interest costs.
Deficit watchdogs like Maya MacGuineas of the Committee for a Responsible Federal Budget and Robert Bixby of the Concord Coalition have been calling on Donald Trump and Hillary Clinton to make clear to voters what their plans are to bring that long-term debt trajectory under control.
So far those calls have gone unheeded by both candidates.
