US budget deficit falling faster than expected

Since the recession ended four years ago, the federal budget deficit had been over $1 trillion every year, but the government's annual deficit was now shrinking far faster than anyone in Washington expected, and perhaps even faster than many economists thought was advisable for the health of the economy.

That is the thrust of a new report released on Tuesday by the nonpartisan Congressional Budget Office (CBO), which estimated that the deficit for this fiscal year, which would end 30 September, would be down to around $642 billion, or 4 per cent of the national annual economic output, around $200 billion lower than the estimates of the agency just three months ago.

According to the agency the deficit, which topped 10 per cent of gross domestic product in 2009, could be down to as little as 2.1 per cent of gross domestic product by 2015 - a level that could easily be sustained over the long run, according to most analysts.

On the whole, the figures demonstrated how the economic recovery had started refilling the government's coffers. At the same time, despite its political paralysis, Washington had proved remarkably successful at cutting the deficit through a variety of tax increases and cuts in domestic and military programmes, according to commentators.

The last time the CBO estimated US future deficits was four months ago in February. The CBO had then thought deficits were falling and health-care costs were slowing, but today the CBO thought deficits were falling even faster and health-care costs were slowing even more.

According to The Washington Post,  Washington's most powerful budget wonks had cut their prediction for 2013 deficits by over $200 billion and also cut their projections for deficits over the next decade by more than $600 billion. Adding it all up the 10-year deficits looked downright manageable.

According to the CBO, deficits over the next decade would fall from 7 per cent of the economy in 2012 to 2.1 per cent of the economy in 2015, which was quite a manageable debt load. Rather it could even be probably too much deficit reduction, too quickly.

However, deficits would rise again and by 2023, they would be back up to 3.5 per cent of GDP - not a dangerous level, though higher than normal.

Spending on Medicare and Social Security would be expected to increase by 1.1 per cent of GDP, which was more than all of the Affordable Care Act was expected to cost - even though it was an entirely new programme that was being set up from scratch. Interest payments were expected to rise by 1.8 per cent of GDP, and just about everything else was falling as a percentage of the economy.