Tuesday, May 14, 2013

CBO Update: Deficit Shrinking Rapdily

by Calculated Risk on 5/14/2013 05:50:00 PM

The Congressional Budget Office (CBO) released their new Updated Budget Projections: Fiscal Years 2013 to 2023

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, the Congressional Budget Office (CBO) estimates, the smallest shortfall since 2008. Relative to the size of the economy, the deficit this year—at 4.0 percent of gross domestic product (GDP)—will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.
For the current fiscal year, the CBO was projecting a deficit of 5.3%, and they are now projecting a deficit of 4.0%.  This is down sharply from 7.0% last year.  And the CBO expects the deficit to fall to 2.1% of GDP in 2015.

US Federal Government Budget Surplus DeficitClick on graph for larger image.

This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.

The rapidly declining deficit might provide policymakers some room to alter the ill-conceived sequestration budget cuts. But at the least, this takes all short term (next 2 to 3 years) deficit reduction proposals off the table.   Note: The "debt ceiling" (not paying the bills) is already off the table.

After 2015, the deficit will start to increase again according to the CBO, but as I've noted before, we really don't want to reduce the deficit much faster than this path over the next few years, because that will be too much of a drag on the economy.