'17 deficit estimate up $108B

Congress’ agency cites revenue sag

Treasury Secretary Steve Mnuchin takes a question Thursday during the daily press briefing in Washington. When asked about Congress acting on the debt ceiling, Mnuchin said, “For the benefit of everybody, the sooner that they do this, the better.”
Treasury Secretary Steve Mnuchin takes a question Thursday during the daily press briefing in Washington. When asked about Congress acting on the debt ceiling, Mnuchin said, “For the benefit of everybody, the sooner that they do this, the better.”

The U.S. government's budget deficit is widening sharply this year, the Congressional Budget Office said Thursday in a report that comes as Republicans are trying to develop a tax cut package on Capitol Hill.

The agency said the deficit would widen to $693 billion for the fiscal year that ends Sept. 30. That is roughly 3.6 percent of gross domestic product and would mark the largest budget deficit since 2013. In January, the budget office projected that the deficit would be $108 billion less, at $585 billion, or 2.9 percent of GDP.

The primary reason for the larger deficit estimate is that the government is collecting less money in tax receipts than forecast.

Revenue is estimated to be $3.315 trillion for the fiscal year that started Oct. 1. The agency in January projected fiscal 2017 revenue at $3.4 trillion.

The lagging receipts are likely one reason the agency also projected Thursday that the Treasury Department could run out of money to continue paying the government's bills by early to mid-October if the debt ceiling -- which is set by Congress -- isn't increased by then.

Treasury Secretary Steven Mnuchin, asked at a news conference Thursday about Congress acting on the debt ceiling, said, "for the benefit of everybody, the sooner that they do this, the better."

Because the government runs a budget deficit -- it spends more money than it brings in through revenue -- the Treasury Department borrows money by issuing debt to cover the difference. But it can issue debt only up to a certain level set by Congress. Mnuchin has said his agency has enough money to pay the bills through September. The budget office's estimate was slightly different, though it warned that the Treasury had an $81 billion payment to military pension funds on Oct. 3 that could be difficult if cash reserves run low.

The agency said the reason the deficit grew more rapidly than expected this year is because tax receipts are only expected to be 1 percent higher than the amount collected in fiscal 2016. It projected that individual income taxes are on pace to fall this year by 0.2 percent of GDP. It declined to give a reason, saying it needed more time to analyze tax return data.

Mnuchin has said that one reason tax receipts are lagging is because wealthier Americans are taking steps to delay tax payments in anticipation of a major overhaul of the tax code that cuts rates substantially.

Also adding to the deficit is an expected 5 percent increase in government spending, mostly triggered by programs that are on autopilot and don't need congressional authorization. For example, the budget office said there is a $40 billion increase in what the Department of Education will pay on past student loans. There was little change in the estimated costs of the largest federal programs, like Social Security and Medicare. Total government spending this year will reach $4.008 trillion, the budget office said.

The agency estimated that the deficit would shrink in fiscal 2018 but then begin widening in 2019 and beyond, driven in part by costly government programs that provide benefits for older Americans: Social Security and Medicare.

The agency projected that the cumulative deficit between 2018 and 2027 would reach $10.112 trillion. In January, it had estimated this gap would be $9.426 trillion.

The national debt is almost $20 trillion. A 2015 debt-limit law expired in March, and Mnuchin has been using accounting maneuvers to keep the government solvent.

The budget office estimates come at a crucial moment for Congress, which is considering major changes to the government budget as well as an overhaul of the tax code and substantial changes to Medicaid.

The upcoming votes in both the House and the Senate promise to be a challenge to GOP leaders such as Speaker Paul Ryan, R-Wis. Many Republicans refuse to vote to increase the borrowing cap, which means Republicans controlling Washington are sure to have to rely on Democrats to pass an increase.

If Congress doesn't raise the debt limit in time, the Congressional Budget Office warns it would "ultimately lead to delays of payments for government programs and activities, a default on the government's debt obligations, or both."

Mnuchin has called on Congress to pass a "clean" debt ceiling increase -- without any policy riders -- ideally before a five-week break that begins late in July. White House budget director Mick Mulvaney, backed by conservatives in the House, has suggested using the bill to try to force Democrats to accept spending cuts.

House and Senate Republicans are considering a major change of the health care system that would include a roughly $700 billion tax cut over 10 years, something that would further reduce government revenue. Many Republicans have argued that cutting taxes will spur more economic growth, and a major part of President Donald Trump's economic agenda is a large reduction in corporate and individual income tax rates.

The Congressional Budget Office also forecasts significantly slower growth in the economy than promised by Trump's budget, which many analysts have said was overly optimistic.

The budget office estimates a 2.2 percent growth rate for fiscal 2017, which is in line with the Trump administration's promised 2.3 percent increase.

But the agency sees a slowdown over the next couple of years, with growth over 2019-2020 averaging just 1.5 percent. Trump's budget promises growth of 2.9 percent in 2019 and long-term growth of 3 percent a year starting in 2021.

The agency says it will score Trump's budget next month, using its less optimistic growth and revenue projections. Trump promises a balanced budget by the end of a 10-year span, but the budget office study is likely to rebut those claims.

The budget office estimates are based on current law, so they don't reflect any assumptions about the course Republicans may take on repealing and replacing the 2010 Affordable Care Act.

Information for this article was contributed by Damian Paletta of The Washington Post; by Andrew Taylor of The Associated Press; and by Daniel Flatley, Erik Wasson and Saleha Mohsin of Bloomberg News.

A Section on 06/30/2017

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