May CBO update: The deficit is way smaller than we thought.

The Deficit Is Falling Fast

The Deficit Is Falling Fast

A blog about business and economics.
May 14 2013 2:34 PM

The CBO's Projected Budget Deficits Just Shrank by Hundreds of Billions of Dollars  

The Congressional Budget Office just did a new series of baseline budget deficit projections (PDF) and they're a lot lower than the old ones. The short-term deficit, in particular, is way lower. We're looking at a $643 billion deficit for 2013 rather than an $845 billion one. That's about half higher-than-expected tax revenues and about half higher-than-expected payouts from Fannie Mae and Freddie Mac. In both cases what we're seeing is that a stronger-than-expected economy leads to a smaller-than-expected deficit.

But they're also revising the 10-year deficit forecast down by $618 billion, primarily because of the slowdown in health care spending.

Now the trick here is that the important budget deficit problem is actually outside the 10-year window. The current projection has the deficit shrinking for the next couple of years and then growing again. That leaves us with a very manageable 2024 deficit. The problem is that it's trending upward. And nothing in this revised projection changes that fact. Under current law, the deficit will bottom out in a few years and then grow and grow forever.


The flipside, though, is that there's really no need to panic or think that there has to be a grand bargain. What we need are more measures to reduce the cost of health care and more measures to boost economic growth.