The Federal Budget Deficit is Shrinking, and Fast

This year’s deficit is now expected to be about 59% as much as last year’s, and the next five years’ deficits even less.  

 

After a string of several years of budget deficits larger than 1 trillion dollars per year, the current fiscal year’s U.S. budget deficit is now expected to be about $642 billion. (This fiscal year ends on September 30, 2013.) Then during the subsequent five years—2014 through 2018—the deficit is expected to be even less than this year.

The Apples-to-Apples Comparison

Deficit amounts are often expressed in percentage of GDP—the gross domestic product. It seems sensible to base the size of a nation’s government’s debt on the size of that nation’s economy.

By this measure, the deficit will be falling from more than 10% of GDP in 2009 to about 4% this fiscal year. And it’s projected to go down to about 2.1% of GDP in 2015. For the sake of long-term comparison, the average deficit over the last 40 years was 3.1% of GDP.  

Why is the Deficit Shrinking, and Faster than Expected?

The deficit projection is about $200 billion less than was projected just a few months ago. The decrease is not so much from the impact of the “sequester” political stalemate (which was already calculated into the previous projections), but instead for two other reasons: tax revenues from both individuals and businesses are increasing faster because of the improving economy, and the mortgage financing giants Fannie Mae and Freddie Mac have recently returned to profitability and are starting to repay the bailout money that taxpayers invested in them.

The Congressional Budget Office

To gauge the reliability of this information, it’s worth considering the reliability of its source.

This all comes from a report on updated budget projections by the Congressional Budget Office (CBO) released earlier this month.  This report is mandated by law. The CBO’s mandate is to be “strictly nonpartisan,” conducting “objective, impartial analysis,” without making policy recommendations. 

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