The age of trillion-dollar deficits is well over. For now.
Thanks to a recovering economy, spending restraint and higher tax receipts, the Congressional Budget Office now projects the deficit for 2014 will be $514 billion, or 3% of the size of the U.S. economy.
As a share of gross domestic product, that represents a nearly 27% drop from last year, and marks the smallest deficit since 2007.
In its latest budget and economic outlook, released Tuesday, the CBO also projected that the 2015 deficit would reach a low for the coming decade, at $478 billion, or 2.6% of GDP, and then stay below 3% for a couple of years after that.
But then the downward trajectory ends.
Deficits will again top $1 trillion starting in 2022, and be at or above 4% of GDP, according to the CBO.
The reason? Revenue will keep pace with economic growth but spending will exceed it.
“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 CBO said.
All other federal spending except that on entitlements and interest, meanwhile, is project to reach its lowest point as a percentage of GDP since 1940.
For policymakers, the sharp drop in deficits for the next few years relieves pressure on them to address entitlement and tax reform.
Indeed, there is little appetite left in Washington for the so-called grand bargain.
“We predict today’s good news on red ink will make it virtually certain that no entitlement reform will occur until after the 2016 election,” said Greg Valliere, chief political strategist for the Potomac Research Group.
Treasury Secretary Jack Lew, speaking at the Bipartisan Policy Center on Monday, acknowledged talks on closing the longer term budget shortfalls aren’t imminent. “We have a little time to deal with the long term.”
— CNN’s Lisa Desjardins contributed to this report.
