Thanks To Barak Obama, America's Deficit Fell An Amazing 37 Percent in 2013 And The Federal Reserve Is Pissed-Off!
To Understand Why The Federal Reserve Would Be Upset Read: The Creature From Jekyll Island
CBO Estimates U.S. Deficit Will Shrink More Than Expected in 2014
Updated April 14, 2014
The U.S. government's gap between spending and revenue will be narrower both this year and later in the decade compared with prior estimates, driven in part by reductions in near-term military spending and falling longer-run costs associated with the Affordable Care Act, the Congressional Budget Office said.
The CBO, a nonpartisan agency that advises Congress on budget policy, on Monday said the adjustments will lower its forecast for the 2014 deficit to $492 billion, or $23 billion less than it estimated two months ago. That's equivalent to 2.8% of gross domestic product, marking the smallest deficit since 2007. Since 1980, the deficit has averaged roughly 3.2% of GDP.
CBO also reduced the government's projected 10-year deficit by $286 billion, to $7.6 trillion, mainly because of lower subsidies related to the health-care law. Future Medicare spending was also revised lower.
The estimates come during a brief period of rapidly shrinking budget deficits, forcing both political parties to rethink their approaches to taxes and spending heading into the November midterm elections. The White House and Republican lawmakers have battled over the deficit for years, primarily through protracted debates over how much revenue to collect and how to structure government programs.
The deficit has contracted sharply in the past few years. After four years of deficits in excess of $1 trillion, the deficit shrank to $680 billion in 2013 and is expected to keep narrowing this year and in 2015. This was caused in part by the growing economy, cuts to future spending, and changes to tax policy.
The CBO said it expects the government will spend $3.523 trillion in 2014, representing 20.4% of GDP. Two-thirds of the spending is directed to military-related programs and benefits for Medicare, Social Security and Medicaid. It said the government will bring in $3.032 trillion in revenue, a figure that represents 17.6% of GDP. Most of that comes from individual income taxes and payroll taxes.
This is the first sub-$1 trillion and sub-5 percent of GDP deficit since the 2008 fiscal year, which ended the very month that Lehman Brothers fell and a deep crisis set in.
Voters are sending mixed signals on the matter. Most would say the deficit situation is getting worse, says Michael Dimock, vice president of research at the Pew Research Center.
"People certainly don't feel like we're making progress on the deficit," Dimock says. "In December, we asked people whether we've made progress in reducing the budget deficit, and only 29 percent said yes. Sixty-six percent said no, we haven't."
Dimock chalks this up partially to confusion about the difference between the deficit and the debt. But also, when budget deficits were huge and growing, they got a whole lot more attention than the shrinking deficit is getting now.
Dimock says that lack of attention may explain why there's been a huge drop in the percentage of people polled who think cutting the deficit should be a top priority.
"It's the biggest drop in public priorities that we saw between last year and this year," he says. "For an issue that had been rising as a concern so consistently, to see it turn down so sharply really does stand out."
Last year's deficit registered $680 billion. Obama inherited an economy in crisis and first-ever deficits exceeding $1 trillion. The 2009 deficit, swelled by the costs of the Wall Street bailout, hit a record $1.4 trillion, while the deficits of 2010 and 2011 both registered $1.3 trillion.
The report predicted the economy will continue to rebound this year and grow at a 3.1 percent rate and by 3.4 percent next year. It foresees the jobless rate holding steady at 6.8 percent this year; the most recent nationwide unemployment rate registered 6.7 percent. It predicts the jobless rate remaining above 6 percent through the remainder of Obama's term.
CBO sees the deficit sliding to $478 billion next year.
What's Behind it?
There was less spending, amid the drawdown of U.S. involvement in Afghanistan, lower unemployment insurance benefits due to an improving economy, and the enactment government enacted budget cuts called for in the 2011 debt ceiling deal, including the sequestration automatic spending cuts that began in March. Overall outlays were $3.454 trillion, the treasury said, falling $84 billion compared with the 2012 fiscal year. That fall moves government outlays from 22 percent of GDP to 20.8 percent.
It remains true that there are longer-term challenges facing the U.S. government finances, particularly around rising health-care costs. But the reality is that much of the conversation around debt and deficits is missing this basic fact: Deficits are, for now, falling fast. If anything, too fast. Just Wednesday, the Federal Reserve concluded a policy meeting with a statement that asserted, as it has in the past, that "fiscal policy is restraining growth" and that its forecasts are "taking into account the extent of federal fiscal retrenchment over the past year." Independent economists outside the government have reached similar conclusions, and now worry that deficits will fall so fast as to undermine the recovery.
Rebounding tax receipts and slower spending will help narrow the budget shortfall for the third consecutive year, the Congressional Budget Office said on Tuesday. The deficit will continue to fall next year, to $478 billion, before beginning to climb again in 2016, as costs related to aging baby boomers mount.
It’s a turnaround from the early days of the Obama administration, when the government ran a string of trillion-dollar deficits that topped out at $1.4 trillion, amid the Great Recession.
The forecast helps explain why fiscal issues have slipped from the top of lawmakers’ agenda. After battling over taxes and spending for much of the last three years, with repeated standoffs over funding the government and raising the debt limit, lawmakers in both parties have largely moved on. Democrats are eager to focus on income inequality, while Republicans want to keep attention on the troubled Obamacare launch.
The report predicts enrollment this year in Obamacare will likely be about 2 million less than projected, thanks to the bungled roll-out, while CBO sees the law cutting into the number of workers by more than expected.
Republicans seized on those figures. “CBO Report Confirms Devastating Impact of Obamacare on Jobs,” House Speaker John Boehner said in an email blast to reporters.
The report estimated the law will reduce the total number of hours worked by about 1.5 percent or the equivalent of roughly 2 million full time workers. That’s “almost entirely” because people will choose to work less, rather than because businesses will demand fewer workers, CBO said.
Obamacare offers people help buying private insurance on a sliding scale, according to income. So some people will decide to work less or not take a job if it means their higher earnings would disqualify them for some of those subsidies.
“The logic applies to a variety of programs,” said CBO Director Doug Elmendorf.
The agency also said it now expects about six million people — not seven million — to sign up this year for insurance through the Obamacare exchanges, while Medicaid enrollment will similarly be off by 1 million because of technical problems with the law’s roll-out. “The exchanges operated by the federal government have struggled to transfer application information to state agencies for people who might be eligible for Medicaid,” the report said.
The problems will likely only be temporary though, CBO said, projecting enrollment will grow rapidly in coming years as the public becomes more familiar with the program. By 2016, 22 million will join the exchanges.
So far, those signing up have seen premiums about 15 percent cheaper than the agency anticipated.
On the debt limit, the analysis showed lawmakers will need to act by early March. The Treasury Department will run out of the so-called “extraordinary measures” it uses to stave off default by late February or early March and “sometime during the first half of March” it will run out of cash as well, leaving it unable to pay all of the government’s bills.
CBO sees the economy making solid gains, with growth exceeding 3 percent this year and next, though the jobless rate will likely remain above 6 percent until late 2016.
“Today’s report underscores why President Obama and Democrats in Congress are so committed to boosting job growth,” said Rep. Chris Van Hollen, the top Democrat on the Budget Committee.
Republicans noted the good news will only be temporary. The CBO anticipates the deficit will begin growing again in 2016, to $539 billion, as retiring baby boomers swell the ranks of government beneficiaries, interest payments on the debt rise with interest rates and health care costs continue to rise.
By 2022, the government will once again be running trillion-dollar deficits, the report said.
“We still have a lot of work to do,” said House Budget Committee Chairman Paul Ryan.
Lawmakers can take some credit for the short-term improvement in the budget outlook, the report showed, though the strengthening economy helps as well. Congress has repeatedly raised taxes on the wealthy, as part of last year’s fiscal cliff agreement and, before that, Obamacare, while simultaneously cutting spending.
Tax revenues, which plunged during the recession, will be up 9 percent this year and another 9 percent next year. Spending, meanwhile, will grow this year by just 2.6 percent, CBO said.
The Deficit Chart That Should Embarrass The Naysayers!
A very important analysis from Investor's Business Daily shows that "the federal deficit has never fallen as fast as it's falling now without a coincident recession and that the deficit is falling 50% faster than it did during the booming late 1990s."
U.S. Deficit Shrinking At Fastest Pace Since WWII, Before Fiscal Cliff
Believe it or not, the federal deficit has fallen faster over the past three years than it has in any such stretch since demobilization from World War II.
In fact, outside of that post-WWII era, the only time the deficit has fallen faster was when the economy relapsed in 1937, turning the Great Depression into a decade-long affair.
If U.S. history offers any guide, we are already testing the speed limits of a fiscal consolidation that doesn't risk backfiring. That's why the best way to address the fiscal cliff likely is to postpone it.
While long-term deficit reduction is important and deficits remain very large by historical standards, the reality is that the government already has its foot on the brakes.
In this sense, the "fiscal cliff" metaphor is especially poor. The government doesn't need to apply the brakes with more force to avoid disaster. Rather the "cliff" is an artificial one that has sprung up because the two parties are able to agree on so little.
Hopefully, they will agree, as they did at the end of 2010, to embrace their disagreement for a bit longer. That seems a reasonably likely outcome of negotiations because the most likely alternative to a punt is a compromise (expiration of the Bush tax cuts for the top and the payroll tax cut, along with modest spending cuts) that could still push the economy into recession.
Rather than applying additional fiscal restraint now, the government needs to make sure it sets the course for steady restraint once the economy emerges further from the deep employment hole that remains. In fact, a number of so-called deficit hawks are calling for short-term tax cuts to spur growth, rather than immediate austerity.
From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP.
That's just a bit faster than the 3.0 percentage point deficit improvement from 1995 to '98, but at that point, the economy had everything going for it.
Other occasions when the federal deficit contracted by much more than 1 percentage point a year have coincided with recession. Some examples include 1937, 1960 and 1969.
President Obama hasn't gotten much credit for reining in the deficit, probably because a big part of the deficit progress has come from the unwinding of extraordinary government supports that he helped put in place. Stimulus programs have come and mostly gone; the end of stimulus to states led them to enact Medicaid curbs; jobless benefits in recent months have fallen by 50% since early 2010 (due to both job gains and extended benefits being exhausted).
TARP and the bailouts of Fannie Mae and Freddie Mac also make the deficit improvement look better, boosting the fiscal '09 deficit by about $200 billion more than in fiscal '12 (though the initial cost of TARP was overstated).
Still, military spending is now on the decline due to fewer troops in Iraq and Afghanistan; Medicare costs rose 3% last year vs. the average 7% growth in recent years; and after the last year's Budget Control Act, excluding the automatic cuts set to take effect in January, nondefense discretionary spending is already on a path to shrink to 2.7% of GDP, well below the 3.9% average, notes the Center on Budget and Policy Priorities.
With the progress we've made so far, let's hope that our leadership in the executive and legislative branches of government can bring some intelligence to spending cuts.
Monty Henry, Owner
* The Creature From Jekyll Island: This Video Explains Why The U.S. Financial System is Corrupt and How It Came To Be That Way
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