The upbeat forecast from the non-partisan CBO was mirrored by a sharply higher forecast for U.S. economic output from the International Monetary Fund, which raised its projection for U.S. gross domestic product growth to 7% from 6.4%.
The White House welcomed both of the rosy projections – along with others in recent weeks from the World Bank, the Organization for Economic Cooperation and Development and the Federal Reserve – as evidence that President Joe Biden’s plans to jumpstart the U.S. economy were working.
“Growth projections are up, deficit projections are down and unemployment will continue to decrease. Biden’s economy is booming,” a White House official said, adding that the newest forecasts also saw the current bump in consumer prices as temporary.
The non-partisan CBO said in updated forecasts that it expects gross domestic product growth to reach 7.4% in 2021, based on fourth-quarter comparisons, double its forecast for 3.7% growth from February. It said growth would taper off to 3.1% in 2022 and 1.1% in 2023.
In February, the CBO projected a $2.26 trillion deficit for fiscal 2021, which ends on Sept. 30, but that figure did not factor in the impact of President Joe Biden’s $1.9 trillion pandemic aid package enacted in March.
The CBO said that legislation, known as the American Rescue Plan, added about $1.1 trillion to its fiscal 2021 deficit projections. The projections do not include Biden’s proposed investments in infrastructure, child care, education and other social programs, which could add trillions of dollars more to spending if not offset by tax or other revenue increases.
“Projected revenues over the next decade are now higher because of the stronger economy and consequent higher taxable incomes,” it said in a report containing its new forecasts.
The CBO fiscal 2021 deficit estimate equates to about 13.4% of GDP, compared to 14.9% in fiscal 2020. It projects the deficit to fall sharply to $1.153 trillion, or 4.7% of GDP in fiscal 2022, and to $789 billion, or 3.1%, in fiscal 2023.
Robust post-pandemic economic growth is not sustainable however, largely due to the slow growth of the U.S. labor force, the CBO said. It projects GDP growth of 1.2% for fiscal 2024 and 2025, and 1.6% annually for the 2026-2031 period, below its 2% estimate of potential real GDP growth.