U.S. deficit to decline, then rise as labor market struggles -CBO

WASHINGTON Tue Feb 4, 2014 10:01am EST

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WASHINGTON Feb 4 (Reuters) - The Congressional Budget Office on Tuesday reduced its estimate of the U.S. budget deficit for the current fiscal year but said sluggish economic growth and stubbornly high unemployment will cause the improvement to be short-lived.

The CBO said the deficit will fall to $514 billion in the fiscal 2014 year ended Sept. 30, down from its previous estimate of $560 billion and a fiscal 2013 deficit of $680 billion.

The deficit will decline to $478 billion in fiscal 2015, but start to grow thereafter as the economy continues to struggle with an unemployment rate that fails to fall below 6.0 percent until late 2016. The number of workers who are not participating in the labor force also will remain historically high, holding down revenue gains.

President Barack Obama's signature healthcare law will contribute to this phenomenon, CBO said, citing new estimates that the Affordable Care Act will cause a larger than-expected reduction in working hours - eliminating the equivalent of about 2.3 million workers in 2021 versus a previous estimate of an 800,000 decline.

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