While the federal deficit is expected to continue shrinking over the next few years, it gradually will grow again, mostly from expenses related to the government's health care programs and Social Security, reported the Congressional Budget Office (CBO) this week.
The deficit shrank this year to its smallest size since 2008: roughly 4% of gross domestic product, compared with a peak of almost 10%, said CBO in its 2013 Long-Term Budget Outlook (.pdf). CBO cited the reasons as the economy's gradual recovery from the 2007–2009 recession, the waning budgetary effects of policies enacted in response to the weak economy, and other changes to tax and spending policies. If current laws governing taxes and spending were generally unchanged—an assumption that underlies CBO's 10-year baseline budget projections—the deficit would fall to 2% by 2015.
However, CBO projects that budget deficits would gradually rise again under current law, mainly because of increasing interest costs and growing spending for Social Security and health care programs (Medicare, Medicaid, the Children's Health Insurance Program, and subsidies to be provided through health insurance exchanges). CBO expects interest rates to rebound in coming years from their current unusually low levels, sharply raising the government's cost of borrowing.
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