President Biden and the Democrat-led Congress helped add $3.1 trillion to the federal deficit over the next decade, the Congressional Budget Office said Wednesday, delivering a depressing picture of the government’s finances and the economy.
Unemployment will start to tick back up this year, interest rates will remain high, inflation will come down slowly and output will be stagnant in 2023, with the gross domestic product growing at less than half a percentage point, the government analysts said.
Emergency pandemic spending will dissipate, which will help a little. But it also will reveal the true disconnect in the government’s finances, with normal spending “substantially” exceeding the government’s revenue every year.
Social Security’s trust fund will be exhausted in 2032, or within the 10-year budget window. That’s a first, CBO Director Phillip Swagel said.
“Over the long term, our projections suggest that changes in fiscal policy must be made to address the rising costs of interest and mitigate other adverse consequences of high and rising debt,” Mr. Swagel said.
The government will run a $1.4 trillion deficit in 2023, about equal to last year’s figure. That hole will grow deeper in the ensuing years, topping $2 trillion in 2030 and nearing $3 trillion a year by 2033.
Looking out over the 10-year budget window, those cumulative deficits are $3.1 trillion worse than projected a year ago.
CBO said half of that is because of new spending that Congress approved and Mr. Biden signed into law. Another $1.2 trillion is due to economic changes. The remaining $400 billion was attributed to “technical changes.”
Among the grim economic numbers, CBO projects:
• The chief measure of inflation will be 3.8% this year, which is down from 6.3% last year but still nearly double the Federal Reserve’s target of 2%.
• The unemployment rate will rise from 3.6% to 4.7% this year, then hit 4.9% in 2024.
• Real GDP growth will be three-tenths of a percent this year, rising to 1.8% next year before hitting a more robust 2.7% in 2025.
CBO said the growth estimates are “highly uncertain” because it’s difficult to predict inflation.
If it persists at a higher rate than anticipated, it likely means higher interest rates that could dampen the economy even further. But if it subsides more quickly, interest rates may come down faster and growth could be higher.
Likewise, the employment projections are iffy because it’s difficult to predict what people who dropped out of the workforce during the COVID-19 pandemic will do.
The report comes as the government has bumped up against its $31.4 trillion borrowing limit and Congress debates whether — and how — to raise the figure.
CBO’s new data will give ammunition to both sides and is unlikely to sway either party to abandon its stance.
Mr. Biden said in a speech Wednesday that Republicans’ plans would send the deficit into even worse territory. He compiled a list of proposals from the new GOP majority in the House and said it would add an additional $3 trillion over the upcoming decade.
The president said the budget he will soon send to Congress would cut an average of $200 billion a year from the deficit, and he challenged Republicans to lay out their cuts.
“Where are they going to cut?” he said. “Are they going to cut Medicaid, the Affordable Care Act? Are they going to cut Social Security or Medicare, veterans’ benefits, aid to farmers? At the State of the Union, they seemed to say that they’re not going to cut Social Security and Medicare. OK, great. I hope that’s true. But how are they going to make these numbers add up?”
But Rep. Jodey Arrington, Texas Republican and chairman of the House Budget Committee, said CBO’s dismal report was a result of Mr. Biden’s “socialist policies and single-party Democrat rule.”
“House Republicans must rein in the unbridled spending and restore fiscal sanity in Washington before it’s too late,” he said.
Mr. Biden argues the country’s fiscal problem is a lack of tax revenue, while Republicans say the issue is overspending.
CBO said the government will take in $4.8 trillion in revenue this year, which works out to 18.3% of GDP. It will spend $6.2 trillion, or 23.7% of GDP.
That gap works out to the $1.4 trillion deficit.
Over the last 50 years, the government has averaged revenue of 17.4% of GDP, which means taxes are currently higher than usual.
But spending has far outpaced the higher taxes. The government has averaged spending of 21% of GDP over the last 50 years but is projected to be at about 24% for the next decade.
That gap works out to nearly more than $20 trillion in new deficits over the decade.