WASHINGTON (AP) — The Biden administration is forecasting that this year’s budget deficit will be $555 billion lower than it estimated back in May, helped by an economy that is rebounding more quickly than had been expected.
But even with the improvement, the administration said Friday that it is forecasting a deficit of $3.12 trillion for the budget year that ends Sept. 30. That would be the second largest deficit in history, exceeded slightly by last year’s $3.13 billion deficit.
And for the next decade, the administration never sees the annual deficits falling below $1 trillion. For the 2022 budget year, which begins Oct. 1, the administration is projecting a deficit of $1.54 trillion.
The non-partisan Congressional Budget Office forecasts an even lower deficit of $1.15 trillion next year.
However, the CBO forecasts are based on current law and do not take into account what the impact will be of two massive spending bills that have yet to pass Congress, a bipartisan measure of around $1 trillion in spending on traditional infrastructure projects such as roads and bridges and a $3.5 trillion measure backed only by Democrats to offer expanded health care, pre-school and junior college education and climate change initiatives.
Even with the added infrastructure and social spending, the Biden administration said Friday that it sees the deficits over the next decade coming in $684 billion below its earlier forecast. However, that improvement would still leave deficits over the next decade totaling $12.49 trillion.
In the last two years, deficit totals have worsened as the government approved trillions of dollars in support for individuals and businesses caught in an economy reeling from the coronavirus pandemic.
Last year’s deficit of $3.13 trillion surpassed the previous record-holder of $1.4 trillion set in 2009 during the Obama administration, when the government was spending heavily to deal with a severe recession after the 2008 financial crisis.
The administration’s Mid-Session Review said much of the improvement in the deficit forecast for this year stemmed from a strong economic rebound, reflecting the impact of President Joe Biden’s economic policies.
The review upgraded the administration’s economic forecasts to show an economy expanding this year by 7.1%, when measured from the fourth quarter of last year. That is up from the administration’s previous projection of growth this year of 5.2%.
In addition to boosting growth this year, the administration’s new forecast increases inflation, predicting consumer prices will rise 4.8% this year compared to last year, up from an earlier forecast of just a 2% price increase. Officials said the increase reflected the higher inflation the country has seen so far, stemming in part from supply-chain bottlenecks.
The administration sees inflation pressures easing next year, with prices projected to rise 3.3% in 2022 and then falling further to a 2.2% rise in 2023. The Federal Reserve seeks to manage its monetary policy to achieve 2% annual gains in inflation.