White House cuts 2023 US deficit forecast after court blocks student loan forgiveness

THE White House on Friday (Jul 28) revised its fiscal 2023 US budget deficit forecast to US$1.54 trillion, a decrease of US$26 billion from its March budget forecast, due largely to a major reduction in outlays after the Supreme Court struck down President Joe Biden’s student loan forgiveness programme in June.

The Office of Management and Budget (OMB) said that the student loan decision would reduce fiscal 2023 outlays by US$259 billion, partly reversing an upfront charge of US$430 billion taken by the Biden administration against fiscal 2022 results to cover the programme’s costs.

But after the Supreme Court blocked the programme to forgive up to US$20,000 in student debt for many borrowers, Biden announced revisions to an income-driven student loan repayment programme to reduce the amount that low-income workers pay by around US$1,000 a year, and end their repayments sooner.

An administration official said these changes and other changes would result in US$74 billion in added costs in 2023, reducing the overall savings from the court’s decision. OMB said the same changes would add US$85 billion in additional outlays through 2033.

The OMB’s Mid-Session Review update estimated a net reduction in 2023 outlays of US$242 billion.

Estimates for the credits associated with Biden’s Inflation Reduction Act, including for electric vehicle purchases and investments in battery production, were US$4 billion higher than previously forecast for 2023, and US$120 billion higher over a decade.

The reduction in outlays for 2023 was substantially offset by a US$215 billion net reduction in receipts, mostly due to lower collections to date and technical revisions based on new tax reporting data, the budget office said.

Economic forecast changes had little impact on the budget forecast revisions, increasing 2023 receipts by only US$4 billion compared with March forecasts. Based on data as at Jun 1, OMB left unchanged its forecast for 2023 US real GDP growth of 0.4 per cent, while decreasing its 2024 growth forecast to 1.8 per cent from 2.1 per cent

But OMB forecast lower unemployment in 2023 at 3.8 per cent compared with 4.3 per cent in March, while it forecast 4.4 per cent unemployment in 2024, down from 4.6 per cent in March.

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Over the 10-year budget window, OMB estimated that if Biden’s fiscal 2024 budget proposals were enacted – including substantial tax increases on the wealthy and corporations – cumulative deficits would be US$107 billion higher than estimated in March. But the 10-year deficits would still be roughly US$2.6 trillion lower than OMB’s current-law baseline. REUTERS