The White House is eager to take credit for the fact that the federal deficit is shrinking dramatically this year, and a new report from the Congressional Budget Office confirms that the budget gap will indeed fall to $1 trillion in 2022. – a huge decrease from the $2.8 trillion deficit recorded in 2021.

As many tax experts have pointed out, however, the shrinking budget deficit is largely a one-time event due to the expiration of pandemic-related temporary relief programs, and the long-term story is quite different. . According to the CBO’s latest 10-year outlook, released Wednesday, the deficit will begin to rise again next year as it returns to its pre-pandemic trajectory, with larger deficits averaging $1.6 trillion a year. year between 2023 and 2032.

As a percentage of the economy, the deficit is expected to reach levels rarely seen in the post-war period. The CBO projects a budget deficit of nearly $2.3 trillion in 2032, or 6.1% of gross domestic product. “The deficit has only been greater than that six times since 1946,” says CBO.

Inflation will remain high until next year: Higher-than-expected inflation over the past year has shaped the CBO’s latest projections, and the agency now estimates that consumer price increases will remain elevated, with a rate of 4% in the final quarter of the year. year and a rate of 6.1% for the whole year. In 2023, the CBO expects inflation to reach 3.1%, but to fall below 3% by the end of the year, closer to the long-term target of 2% of the Federal Reserve – the level predicted by the CBO for 2024.

The economy is expected to grow by 3.1% in 2022, but slowly thereafter. “After 2022, several factors, including tighter monetary policy and declining fiscal support, combine to slow output growth,” the CBO says, producing an average GDP growth rate of 1.6% from 2023 to 2026.

Tax revenue at its highest for two decades: The strong recovery from the pandemic is helping to produce record tax revenue, and the CBO now expects federal revenue to rise by $800 billion this year. As Politico’s Brian Faler points out, that 19% increase over the previous year — the biggest jump in nearly four decades — is roughly equal to the Pentagon’s entire budget.

Total tax revenue is expected to reach 19.6% of GDP, the highest level since the dot-com bubble more than 20 years ago.

Growing debt: Thanks to the booming economy, the national debt measured as a percentage of the economy has fallen this year, falling to around 96% of GDP. But the latest projections show that the debt-to-GDP ratio will rise again from 2024, reaching 110% by 2032. In nominal dollars, the debt will rise from $23.8 trillion today to $40.2 trillion. dollars over the next 10 years.

Interest charges should triple: The CBO expects interest rates to continue their recent upward trend, with 10-year Treasury rates rising from around 2.8% today to 3.8% by 2028.

Higher interest rates mean more debt service charges. The CBO estimates that by 2032, annual interest charges will total nearly $1.2 trillion – the highest level since at least 1940, and at 3.3% of GDP, more than the country has should pay for national defence. In total, the United States will spend $8.1 trillion over the next 10 years to service debt, an increase of $1.9 trillion from last year’s estimate.