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CBO: US budget deficit to surpass $1 trillion 2 years earlier than expected

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CBO: US budget deficit to surpass $1 trillion 2 years earlier than expected

U.S. federal budget deficits will widen more than initially projected over the next decade and the annual shortfall may surpass $1 trillion two years earlier than previously estimated, under new projections from the Congressional Budget Office.

The CBO increased its cumulative budget deficit forecast for 2020–2029 to $12.2 trillion, up $809 billion from the estimate in May. For 2019 alone, the projected budget deficit was raised by $63 billion, to $960 billion.

The new 10-year deficit forecast translates to an average annual shortfall of $1.2 trillion beginning in 2020. In its previous report in May, the CBO projected the annual deficits to start exceeding $1 trillion in 2022.

The biggest factor in the forecast revision was the Bipartisan Budget Act of 2019, which raised caps on discretionary appropriations for fiscal years 2020 and 2021, according to the CBO. That budget law added $1.7 trillion to the 10-year deficit estimate, while supplemental appropriations for disaster relief and border security for 2019 added $255 billion.

Earlier in August, the U.S. Department of the Treasury reported that the budget deficit widened year over year to $866.81 billion in the first 10 months of the government's fiscal 2019, exceeding the entire fiscal 2018 budget gap.

As a result of the projected deficits, the CBO said, federal debt held by the public is now forecast to grow "steadily" to 95% of GDP in 2029 from 79% in 2019, reaching its "highest level since just after World War II."

"The nation's fiscal outlook is challenging," CBO Director Phillip Swagel said in a statement. "Federal debt, which is already high by historical standards, is on an unsustainable course, projected to rise even higher after 2029 because of the aging of the population, growth in per capita spending on health care, and rising interest costs."

Swagel said lawmakers need to make "significant changes" to tax and spending policies to put federal debt on a "sustainable course." President Donald Trump said Aug. 20 that his administration is exploring additional economic stimulus in the form of payroll and capital gains tax cuts, but he said no action is imminent.

On the economy, the CBO said real GDP growth is expected to hit 2.3% in 2019. Annual output growth is then forecast to slow to an annual average of 1.8% through 2029.

"That slowdown occurs primarily because the labor force is expected to grow more slowly than it has in the past," the CBO said.