Congress‘ official scorekeeper said Tuesday that the federal government’s financial picture has improved slightly and the federal deficit this year will drop below $1 trillion for the first time in President Obama’s tenure — though a sea of red ink still looms on the horizon.
Analysts at the Congressional Budget Office said unemployment will hover around 8 percent in 2013 and the economy will grow slowly, but thanks to strict limits on discretionary spending and to last month’s tax increases, government finances look somewhat better in the near term.
Indeed, after those tax increases, government revenue will reach 19 percent of the economy by 2016 and remain there for the rest of the decade. Meanwhile, spending will be 23 percent of the gross domestic product in 2023. That means both taxes and spending will be above their historic averages of 18 percent and 21 percent, respectively.
In 2013, revenue will leap $259 billion to hit $2.71 trillion, while spending will jump a mere $15 billion to total of $3.55 trillion — leaving a deficit of $845 billion.
There is also some good news on the debt front. While the dollar amount will continue to grow steadily, it will stabilize in the middle of the decade when measured as a percentage of the economy.
But both deficits and debt will rise again toward the end of the decade, highlighting the challenge.
“We have a large budget imbalance. We have large projected deficits, a debt that will remain at a historically high share of GDP and will be rising at the end of the decade,” said CBO Director Douglas Elmendorf. “I think what that implies is small changes in budget policy will not be sufficient to put the budget on a sustainable path.”
CBO, which is the nonpartisan official scorekeeper for the government, releases an annual evaluation of the government’s fiscal stance, which sets the tone for the year’s budget debate. As is usual with the reports, each side saw what it wanted to.
House Minority Whip Steny H. Hoyer, Maryland Democrat, said the report was a validation of the tax increases and spending limits Congress has already enacted, and said both more tax increases and spending cuts need to be part of the future.
“I hope House Republicans will see its release today as an opportunity to set politics aside and work with Democrats to make the tough choices necessary,” he said.
“This isn’t a partisan issue. It’s math. Unless the president and the Senate offer a credible plan to close the deficit, we will have a debt crisis — and the country will suffer,” said House Budget Committee Chairman Paul Ryan, Wisconsin Republican.
Government debt jumped $41 billion on Monday as the Treasury Department was freed from the $16.39 trillion borrowing limit after Mr. Obama signed a law waiving the debt ceiling through mid-May.
House Republicans wrote that waiver hoping it would give all sides more space to negotiate a broader deal on tax reforms and spending cuts that would leave government finances in better shape.
CBO said that while the economic picture is gloomy this year, in part because of spending cuts and tax increases that will hamper the economy, economic growth will rise much faster in 2014 through 2016, when it will reach 4.4 percent.
The optimism comes because CBO says it sees housing and auto sales improving, and state and local governments’ belt-tightening will no longer be the drag on the economy that it has been over the past few years.
Over the long term, stiff restrictions on basic domestic and defense spending, combined with lower-than-projected spending on Medicare and Medicaid, will also help the government’s bottom line.
But that assumes Congress will follow through on the tight limits on spending it has written into law, including the automatic “sequesters” now due to take effect March 1 and to run through most of the decade.
Even without the sequesters, discretionary spending is already tight and by 2023 would be less, when calculated as a percentage of the economy, than at any time since records began to be kept in 1962.
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Stephen Dinan can be reached at email@example.com.
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