CBO: Steeper Drop in Deficit Than Previously Estimated

Bloomberg: “The U.S. government’s deficit will fall to $492 billion this year, according to the Congressional Budget Office, a steeper drop than originally predicted from $680 billion in fiscal year 2013.”

“The 2014 deficit will be 2.8 percent of the economy, according to CBO, almost 32 percent below fiscal year 2013, when it was 4.1 percent. The deficit will shrink again in fiscal 2015 to $469 billion, before rising to about $1 trillion in fiscal years 2022 to 2024, CBO said.”

“President Barack Obama has often pointed to the declining deficit in making the case for his economic program, including greater spending on infrastructure and other items. Republicans have called for deeper cuts to balance the budget.”

But: “Deficits will rise sharply after next year, CBO said. Cuts to discretionary spending on programs such as military defense and national parks will be more than offset by a rise in health care and Social Security costs, as the baby boomer generation ages into retirement, as well as higher interest payments on the national debt.”

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  • Lorehead

    By the way, 2.8% of GDP is lower than any of Reagan’s deficits.

    • Arbar

      Are you a nerd?

      • Lorehead

        Yes. Thank you for the compliment.

    • Alan Colon

      Reagan didn’t have essentially zero percent interest rates. He also had a Cold War to fight, a military three times the size of ours, came into office in the teeth of the worst economy since the Great Depression (remember 10% interest rates, 10% unemployment! and 10% annual inflation?)

      Also, Reagan wanted less spending, but was forced to spend more by Congress. Obama wants to spend a lot more, and was forced to cut back by Congress.

      • Lorehead

        Much of what you say is simply untrue. It was Obama who came into office during the worst economy since the Great Depression, and Reagan who had a major recession start during his term. In fact, there really is no consistency in the Conservative movement’s propaganda on this: can a president blame a bad economy at the start of his term on his predecessor, or not? With Reagan or George W. Bush, Republicans say yes. With Clinton or Obama, they say no. Why is that?

        Defense spending is not three times higher than in the ’80s. At its highest point during Reagan’s term, 1982 it was 5.5% of GDP. It was 4.4% of GDP in 2010. (Source: research.stlouisfed.org.) And of course GDP is much higher now than then.

        High interest rates would be a reason to borrow less, not more! In fact, the reason Reagan’s deficits are a problem were that they raised interest rates still higher (remember crowding-out?) In contrast, as you say, interest rates are near zero, meaning that the deficit is not, at present, causing any problems whatsoever and the obsession with cutting it in the short term is a mistake. (Indeed, most of the people who say they want to cut the deficit actually believe that cutting the deficit is a lower priority than cutting their taxes, which leaves them insisting that the deficit is a major crisis that must be solved with absolutely no sacrifice from themselves).

        Finally, Congress did not force President Reagan to spend more than he wanted, and indeed in his last two years spent less than he requested. You can’t blame Reagan’s total failure to ever pay more than lip service to cutting the deficit on his opponents. That story is pure historical revisionism. President Obama, on the other hand, repeatedly proposed grand bargains that would have reduced spending and raised taxes, both of which would have cut the deficit, and had the Republican House reject his proposals because they included tax increases. A recent example was Obama’s proposal to convert Social Security cost-of-living increases to the chained CPI, as part of a grand bargain.

        • embo66

          Fabulous, informative response. Thank you! (I also note you shut that whole Colon thing down.)

          • Lorehead

            Could we please dispense with the name-calling?

          • embo66

            Excuse me? The original poster’s name is Alan COLON. I merely made a pun on his REAL name.

            Geez, lighten up.

      • lookolook

        You’re standing truth upside down.

  • moderatesunite

    that is actually tremendous news. It’s still concerning that the deficit is projected increase again after next year. Of the causes mentioned it is probably inevetible that at some point interest rates will go up, and some degree of an increase in payments on the debt will take place, I wonder about the assumptions of those predictions as it is dependent on what the Fed decides to do. Even more in doubt are the projections for Medicare and other entitlement spending. If the present slowdown in healthcare costs continues those projections are likely off substantially.

    • Lorehead

      Honestly, no. A few years ago, when the deficit was twice as high, I pointed out that the deficit was not a problem in the short term, but the long-term deficit was. I still think so, and therefore it’s only mildly encouraging that the deficit has fallen in the short term.

      Since the long-term deficit is almost all driven by health-care spending, however, it is much more encouraging that medical inflation since Obamacare took effect is at its lowest level in fifty years.

      • moderatesunite

        I’m well aware that in the coming decade and beyond the biggest factor is healthcare spending. The current very low healthcare inflation rates is the main thing that could call into question the projections of a dramatic increase in the deficit.
        The main factor to me seems to be how much of the projected increase is a result of baby boomers hitting retirement and larger payouts being necessary, vs projected increases in general healthcare costs, and whether or not any legislation is passed to further bring the medium and long term costs under control.

        It’s not the simple fact that the deficit has fallen that I find encouraging, but that the rate has been faster than predicted, and the amount relative to GDP projected for this year is something managable

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