U.S. Budget Deficit Shrinks Far Faster Than Expected

[J.E.D]

Where are the Republicans praising Obama admin for deficit reduction?




U.S. Budget Deficit Shrinks Far Faster Than Expected

Since the recession ended four years ago, the federal budget deficit has topped $1 trillion every year. But now the government’s annual deficit is shrinking far faster than anyone in Washington expected, and perhaps even faster than many economists think is advisable for the health of the economy.

That is the thrust of a new report released Tuesday by the nonpartisan Congressional Budget Office, estimating that the deficit for this fiscal year, which ends on Sept. 30, will fall to about $642 billion, or 4 percent of the nation’s annual economic output, about $200 billion lower than the agency estimated just three months ago.

 

[TakeAStepBack]

 

[J.E.D]

Do you dispute the CBO report? Let's see YOUR analysis

 

[Toro]

Good news. Not great news. Still lots of work to do. But we're on the right track.

The Congressional Budget Office said Tuesday the federal deficit is expected to shrink to $642 billion in the fiscal year ending Sept. 30, narrowing from the agency's estimate of $845 billion three months ago and sharply lower than last year's $1.087 trillion shortfall.

The agency attributed the drastic shift to higher-than-expected individual and corporate tax payments, due in part to growth and higher rates that kicked in at the beginning of the year, and large dividend payments that mortgage-finance companies Fannie Mae FNMA +26.32% and Freddie Mac FMCC +26.37% plan to make to the government this year.

After four straight years of $1 trillion deficits, the country's fiscal picture is changing. A slowly recovering economy, cuts in government spending driven by periodic budget clashes, and higher taxes have narrowed the gap between what the government brings in and what it spends. ...

The CBO said the improving deficit picture would continue for several years but would reverse course in 2016, when spending picks up as a share of the economy and revenue levels off. It said Medicare and Social Security would begin to consume an even larger share of the budget. By 2023, Social Security and government health-care spending is expected to hit $3 trillion, or half the budget. ...

The CBO said the deficit for fiscal 2013 is projected to be 4.0% of gross domestic product, still higher than historical averages but down from 7.0% in 2012 and 10.1% in 2009. ...

The CBO said its lower deficit projection for this year reflects higher tax receipts—driven by higher individual and corporate income and one-time moves made by wealthier taxpayers to absorb a tax hit in late 2012 rather than wait until higher tax rates began in 2013 as part of the January fiscal-cliff deal. It also includes an expected $95 billion in dividends from Fannie Mae and Freddie Mac. Both firms were bailed out by taxpayers in 2008 and have been in government conservatorship since.

The CBO said that a number of factors—including lower projections for spending on Medicare, Medicaid, and Social Security—led it to significantly lower its projections for cumulative deficits over the next 10 years. The CBO on Tuesday estimated the total gap between government spending and revenue from 2014 until 2023 would be $6.3 trillion—$618 billion less than it projected in February.

While the deficit is shrinking, the CBO said the federal debt—all the borrowing accumulated by the government over the years—is expected to dip slightly and then begin climbing in 2019, remaining above 70% of GDP. Over the past 40 years, debt as a share of GDP has averaged 39%.

CBO Sees Deficit Narrowing to $642 Billion - WSJ.com

 

[depotoo]

from the same report-

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion...

For the 2014–2023 period, deficits in CBO’s baseline projections total $6.3 trillion. With such deficits, federal debt held by the public is projected to remain above 70 percent of GDP—far higher than the 39 percent average seen over the past four decades. (As recently as the end of 2007, federal debt equaled 36 percent of GDP.) Under current law, the debt is projected to decline from about 76 percent of GDP in 2014 to slightly below 71 percent in 2018 but then to start rising again; by 2023, if current laws remain in place, debt will equal 74 percent of GDP and continue to be on an upward path (see figure below)...



Such high and rising debt later in the coming decade would have serious negative consequences: When interest rates return to higher (more typical) levels, federal spending on interest payments would increase substantially. Moreover, because federal borrowing reduces national saving, over time the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced. In addition, lawmakers would have less flexibility than they would have if debt levels were lower to use tax and spending policy to respond to unexpected challenges. Finally, a large debt increases the risk of a fiscal crisis, during which investors would lose so much confidence in the government’s ability to manage its budget that the government would be unable to borrow at affordable rates.

....

let's change that to if current spending continues rather than if laws stay the same.

 

[depotoo]

CBO | Updated Budget Projections: Fiscal Years 2013 to 2023