Congress' budget scorekeeper slashed its estimate of the federal government's deficit for 2014 from $560 billion to $514 billion, which would be the smallest deficit since before the financial crisis.
That would be a significant decrease from fiscal 2013’s $680 billion deficit, which itself was just half the size of the largest deficits incurred during the worst year of the financial crisis.
The estimates released by the Congressional Budget Office on Tuesday, however, show the government's fiscal outlook worsening in the medium term. Because of slower economic growth cutting into tax revenues, the CBO said, deficits will be about $1 trillion larger over the 2014-2023 period.
The deficit will bottom out at $478 billion in 2015 before rising over the course of the decade and eclipsing $1 trillion for the years following 2022.
For those years, the CBO estimated, deficits will exceed 4 percent of the nation's gross domestic product, and the overall debt level will be near 80 percent of GDP and rising in 2024.
More than half the decrease in the projected 2014 deficit comes from legislative changes, according to the CBO. Those include the expiration of the payroll tax cut and the tax hikes on high-income earners that took place as part of the resolution of the so-called “fiscal cliff” in early 2013.
Absent changes to the law, the debt will reach 110 percent of GDP by 2038, an amount about equal to the country's debt after World War II. That trajectory would be unsustainable, reported the CBO, although it cautioned that projections that far into the future are uncertain.
The CBO attributed its lowered projections of incoming tax revenues to slower-than-expected economic growth. Over the next few years there will continue to be significant “slack” in the economy as it continues to recover from the recession, with unemployment remaining above 6 percent until late 2016.
Although the CBO sees the rate of GDP growth picking up above 3 percent and reaching 3.4 percent in 2015 and 2016, it also anticipates that growth will slow down through the second half of the decade.
Between 2018 and 2024, the economy will be at full strength, but because of an aging population and changes to taxes and spending, growth will be limited. Potential output will grow by about 2.2 percent a year, well below the average rate for recent decades.
Over that time frame, the aging population will also strain the nation’s finances as entitlement spending crowds out other federal priorities.
Spending on Social Security, Medicare, Medicaid, and Obamacare subsidies will rise from 9.7 percent of GDP in 2014 to 11.7 percent in 2024. Those costs, along with rising interest payments, will squeeze all discretionary spending to the lowest percentage of GDP since 1940.
In the long term outside the 10-year budget window, the debt load is even more “worrisome,” according to the CBO.
This story was published at 10:28 a.m. and has been updated.