Since the recession, the federal deficit has been topping One Trillion Dollars every year. But just three months ago the Congressional Budget Office predicted that the 2013 deficit would be around $845 billion…well that was then, this is now and the CBO is now projecting the 2013 deficit at $642 billion…just 4% of the gross domestic product…a figure unthinkable 4 years ago when the deficit topped 10% of the GDP. And they are now predicting that it will shrink to just 2.1% of the GDP in the next two years.
This isn’t good news all around…despite signs of general economic recovery…unemployment remains uncharacteristically high at 7.5%.
But it is time to give the final heave ho to the austerity crowd and do what needs to be done to continue economic growth and finally address the static unemployment rate.
But expected increases in health care costs are still going to put brakes on deficit reductions in the future and at some point will need to be addressed in a positive and ongoing way.
“Revenues have been strong as the economy has outperformed a bit,” said Joel Prakken, a founder of Macroeconomic Advisers, a forecasting firm based in St. Louis.
Over all, the figures demonstrate how the economic recovery has begun to refill the government’s coffers. At the same time, Washington, despite its political paralysis, has proved remarkably successful at slashing the deficit through a variety of tax increases and cuts in domestic and military programs.
Perhaps too successful. Given that the economy continues to perform well below its potential and that unemployment has so far failed to fall below 7.5 percent, many economists are cautioning that the deficit is coming down too fast, too soon.
The $200 billion reduction to the estimated deficit comes not from the $85 billion in mandatory cuts known as sequestration, nor from the package of tax increases that Congress passed this winter to avoid the so-called fiscal cliff. The office had already incorporated those policy changes into its February forecasts.
Rather, it comes from higher-than-expected tax payments from businesses and individuals, as well as an increase in payments from Fannie Mae and Freddie Mac, the mortgage finance companies the government took over as part of the wave of bailouts thrust upon Washington in the darkest days of the financial crisis.
The C.B.O. said it had bumped up its estimates of current-year tax receipts from individuals by about $69 billion and from corporations by about $40 billion.
The immediate spending cuts and tax increases Congress agreed to for this year are serving as a partial brake on the recovery, cutting government jobs and preventing growth from accelerating to a more robust pace, many economists have warned. The International Monetary Fund has called the country’s pace of deficit reduction “overly strong,” arguing that Washington should delay some of its budget cuts while adopting a longer-term strategy to hold down future deficits.