With improving economy and rigorous spending cuts, the U.S. federal government will embrace a normal amount of budget deficit in 2014, a congressional report said on Tuesday.
The Congressional Budget Office (CBO) forecast the deficit will total 514 billion U.S. dollars in fiscal year 2014, compared with a record high of 1.4 trillion dollars in 2009. It means this year's deficit would equal 3.0 percent of the gross domestic product (GDP), close to the average percentage of GDP seen during the past 40 years.
After 2015, however, deficits are projected to start rising because revenues are expected to grow at roughly the same pace as GDP whereas spending is expected to grow more rapidly than GDP.
Spending is boosted by the aging of the population, the expansion of federal subsidies for health insurance, rising health care costs per beneficiary, and mounting interest costs on federal debt.
"The large budget deficits recorded in recent years have substantially increased federal debt, and the amount of debt relative to the size of the economy is now very high by historical standards," the report said.
"The growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis," it said.
Federal revenues are expected to grow by about 9 percent this year, to 3 trillion dollars, or 17.5 percent of GDP, with rising incomes of individuals and corporations, as well as the expiration of various tax provisions.
Federal outlays are expected to increase by 2.6 percent this year, to 3.5 trillion dollars, or 20.5 percent of GDP -- their average percentage over the past 40 years.
After a frustratingly slow recovery from the severe recession of 2007 to 2009, the economy will grow at a solid pace in 2014 and for the next few years, CBO projects.
Real GDP, adjusted after inflation, is expected to increase by roughly 3 percent between the fourth quarter of 2013 and the fourth quarter of 2014 -- the largest rise in nearly a decade.
Unemployment rate will remain above 6 percent until late 2016. The rate of participation in the labor force, which has been pushed down by the unusually large number of people who have decided not to look for work because of a lack of job opportunities, is projected to move only slowly back toward what it would be without the cyclical weakness in the economy.
Tuesday's report came a day after the Treasury Secretary Jacob Lew urged the Congress to raise the debt limit without delay as the temporary suspension of the debt limit will expire on Friday. Improving deficit could mean less urgency to act immediately.