United Kingdom

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

By David Lawder

WASHINGTON (Reuters) -The White House on Friday revised its fiscal 2023 U.S. budget deficit forecast to $1.543 trillion, a decrease of $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 program in June.

The Office of Management and Budget said that the student loan decision would reduce fiscal 2023 outlays by $259 billion, partly reversing an up-front charge of $430 billion taken by the Biden administration against fiscal 2022 results to cover the program’s costs.

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

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

The OMB’s Mid-Session Review update estimated a net reduction in 2023 outlays of $242 billion, incorporating the student loan savings, and lower unemployment compensation, increased costs for well as increased costs for Social Security and Medicare and clean energy tax credits.

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

The reduction in outlays for 2023 was substantially offset by a $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 $4 billion compared to March forecasts. Based on data as of June 1, OMB left unchanged its forecast for 2023 U.S. real GDP growth of 0.4%, while decreasing its 2024 growth forecast to 1.8% from 2.1%

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

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 $107 billion higher than estimated in March. But the 10-year deficits would still be roughly $2.6 trillion lower than OMB’s current-law baseline.

(Reporting by David Lawder; editing by Jonathan Oatis, Aurora Ellis and Marguerita Choy)