Budget deficit declining faster than predicted

WASHINGTON — The federal budget deficit has fallen sharply over the past few years and is on track to decline even further, according to a new report from the Congressional Budget Office.

The deficit this year is expected to be $514 billion — just 3% the size of the economy and significantly less than the $1.4 trillion deficit Congress ran up when it pumped stimulus into the economy in 2009.

The non-partisan budget office has been reporting declining deficits ever since, but Tuesday's report shows that the deficits are shrinking faster than predicted. This year's deficit is $46 billion smaller than CBO projected last year, and over 10 years those projections add up to $1 trillion in smaller deficits.

Why? The CBO says federal revenues are increasing by 9% and short-term spending cuts have held spending increases to just 2.6%.

Deficits are expected to decline this year and next, and then start rising again because of increased health insurance subsidies under the Affordable Care Act, mounting interest costs and an aging population receiving more entitlements, the report said.

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And the national debt — the cumulative effect of those annual budget deficits — is still a problem, the CBO said. The debt will be $17.6 trillion this year, growing to a projected $27.2 trillion by 2024.

"Such large and growing federal debt could have serious negative consequences, including restraining economic growth in the long term, giving policymakers less flexibility to respond to unexpected challenges, and eventually increasing the risk of a fiscal crisis," the report said.

The White House said deficits of less than 3% of the economy are ideal. "The most important thing is that you're getting your debt down as a percentage of the economy, and that it's on a downward path," said Jason Furman, chairman of the Council of Economic Advisers. But he acknowledged that the CBO is projecting deficits to turn the corner! again by 2016. "They're not saying we've solved our fiscal problems."

On Capitol Hill, Republicans and Democrats alike credited bipartisan budget agreements for helping to make progress -- but they also agreed that more work needs to be done.

"Today's report is an important reminder that the debt won't take care of itself — we must take action," said Rep. Paul Ryan, R-Wis., chairman of the House Budget Committee.

Senate Budget Committee Chairwoman Patty Murray, D-Wash., said the report "offers encouraging evidence that our near-term fiscal outlook continues to improve, although there is much more we need to do to tackle our long-term budget challenges."

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