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…
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.
“It’s good news for the budget deficit and bad news for the jobs deficit,” said Jared Bernstein of the Center on Budget and Policy Priorities, a left-of-center research group in Washington. “I’m more worried about the latter…”
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…
In revising its estimates for the current year, the budget office also cut its projections of the 10-year cumulative deficit by $618 billion. Those longer-term adjustments are mostly a result of smaller projected outlays for the entitlement programs of Social Security, Medicaid and Medicare, as well as smaller interest payments on the debt.
The report noted that the growth in health care costs seemed to have slowed — a trend that, if it lasted, would eliminate much of the budget pressure and probably help restore a stronger economy as well. The C.B.O. has quietly erased hundreds of billions of dollars in projected government health spending over the last few years.
The minimal Keynesian response to the Great Recession has resulted in at least as much of a recovery as expected – albeit slower than a Republican reaching to help a homeless person out of the gutter.
Economic recovery, nationwide job growth, is kept at a molasses pace by conservative foot-dragging, especially in the chunk of our national economy generated by federal, state and local government. That segment continues to face a decline in employment.