The federal deficit will spike 33 percent this year, the Congressional Budget Office said Tuesday, saying the gains of the last six years are coming to an end.
An economy still struggling to recover from the Wall Street collapse has kept government revenue low, rising by less than 1 percent. But that hasn’t restrained Washington’s spending, which will rise 5 percent this year, as aging baby boomers continue to sign up for Social Security and Medicare.
All told, the government will end fiscal year 2016 some $590 billion in the red, or about 3.2 percent of gross domestic product. That’s up from 2.5 percent the previous year — marking the first backslide in six years.
“Now it’s official: The era of declining deficits is over,” said Maya MacGuineas, head of the Campaign to Fix the Debt.
Perhaps the gloomiest part of the CBO’s assessment is that the economy will grow only slightly over the next decade.
The government analysts said there isn’t a steady new flow of workers or any major productivity surge on the horizon, so the potential for growth is limited to about 2 percent a year over the next decade. That’s below the average for the 1980s, 1990s and 2000s.
The one silver lining is that interest rates will be lower than the nonpartisan CBO had previously calculated. And those lower rates mean that even as the government piles up debt, its debt-service payments won’t be as high as they might otherwise have been.
But because the economic growth will be smaller, the overall debt burden as measured against the size of the economy will still be the same, at about 86 percent of GDP.
Deficits are the annual shortfall the government runs, while debt is the accumulation over the years.
Deficits peaked in 2009 at $1.4 trillion, amid the Wall Street collapse, the Bush administration’s bailout and the Obama administration’s stimulus package. It has dropped every year since, as the bailout dried up, the economy pulled out of the deepest doldrums and a GOP Congress imposed new restrictions on discretionary spending.
But a new economic stumble at the beginning of this year, combined with a return to higher spending on Capitol Hill, has reversed that progress.
Budget analysts said the presidential campaigns need to treat the numbers as a reality check.
“Voters are hearing a lot of expensive new proposals from candidates but not so much about how to keep the nation’s debt from growing on an unsustainable path,” said Robert L. Bixby, executive director of the Concord Coalition. “Today’s CBO report, which projects a rising debt burden over the next 10 years and beyond, shows why voters should expect candidates to offer credible policies to put us on a better course.”