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Budget analysts say 2015 federal deficit forecast will be lower (+video)

The Congressional Budget Office released its annual summer update on government spending Tuesday.

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    In this 2009 file photo, Congressional Budget Office Director Keith Hall testifies on Capitol Hill in Washington, D.C.
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In a report providing political ammunition to both parties, Congress' official budget analyst projected Tuesday that this year's federal deficit will drop to $426 billion, the lowest shortfall of Barack Obama's presidency.

But the annual summertime update by the nonpartisan Congressional Budget Office also contained words of warning. It cautioned that without action by lawmakers, a graying population and growing health care costs will push annual federal deficits upward again later this decade, spiking back above $1 trillion in 2025.

The budget office released its figures two weeks before lawmakers return to the Capitol from a summer break steering toward a budget clash. The Republican-led Congress has approved a blueprint that uses spending curbs on Medicare, Medicaid and other programs to claim a balanced budget in a decade, a plan Democrats have derided as harsh and unrealistic.

Democrats are likely to use Tuesday's report to argue that planned GOP budget cuts are unnecessary, while the GOP said it demonstrates that action to tame deficits is needed now. As long as the GOP controls Congress and Obama remains in office, the odds for a major deficit-reduction deal seem slim.

"I would caution those who would use this report as an opportunity to take these short-term savings and push for more spending," said Senate Budget Committee Chairman Mike Enzi, R-Wyo. He said "real, substantive budget reforms and savings will have to be on the table during any spending negotiations."

Senate Majority Leader Mitch McConnell (R) of Kentucky has repeatedly vowed that partisan spending clashes will not lead to a government shutdown this fall.

But it could be hard for GOP leaders to win the backing of many conservative lawmakers, who are insisting on cutting federal spending on Planned Parenthood. Secretly filmed videos have shown the organization's officials discussing how they provide fetal tissue to medical researchers.

In March, the budget office projected a $486 billion deficit for this fiscal year, which runs through Sept. 30. The analysis said the $60 billion reduction was largely because collections of individual and corporate taxes have been higher than expected.

Annual deficits peaked at a historic high of $1.4 trillion in 2009 as the Great Recession reduced federal tax revenue and drove up government costs for helping low-income and jobless people. Deficits have dropped since then, falling to $485 billion last year.

This year's $426 billion projected deficit, if it comes true, would be the government's smallest since it was $161 billion in the red in 2007.

It would also mean that this year's shortfall would be 2.4 percent the size of the overall economy, a proportion that many economists consider sustainable. On average over the last 50 years, annual deficits have been 2.7 percent of the economy's size. The record 2009 deficit was 9.8 percent the size of the economy.

The budget office report lowered its projection for 2015 economic growth to a modest 2.3 percent, down from the 2.8 percent it expected in its last forecast in January and reflecting a weak first quarter performance by the economy. But it said the economy "is now on firmer ground," and projected that growth will return to around 3 percent annually in 2016 and 2017 before dipping again.

The analysis also said even though the government has reached the legal limit of money it is allowed to borrow, the Treasury Department should be able to use accounting maneuvers to free up cash and avoid breaching that limit until mid-November or early December. Treasury can use bookkeeping maneuvers such as temporarily taking cash out of certain federal pension funds, money that is restored once Congress enacts a new debt ceiling.

Treasury Secretary Jack Lew told Congress last month that he expects to be able to take steps that could prevent breaching the borrowing limit until late October or early November.

The need for Congress to extend the debt limit has led to frequent partisan clashes, with an unprecedented federal default as a potential consequence should the two parties deadlock.

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