U.S. Deficit Narrows to $642 Billion in New CBO Estimate
The agency yesterday reduced its estimate of the likely shortfall by more than $200 billion compared with its February projections. The agency cited stronger-than-expected tax receipts as well as payments to the Treasury by government-owned Fannie Mae and Freddie Mac as major reasons for the change.
The decline from last year’s $1.1 trillion deficit would mark the first time since 2008 that the gap between taxes and spending slipped to under $1 trillion. It would also postpone the effective deadline for raising the government’s debt ceiling to avoid default until as late as November, the agency said.
The improved budget outlook is sapping the will of Congress to make tough choices to reduce the deficit, said Senator Bob Corker, a Tennessee Republican.
“The intensity doesn’t seem to be there as much -- there’s sort of a fiscal fatigue,” Corker said in an interview. “You just don’t feel the urgency around the issue that we’ve had in the past.”
“I’m becoming very concerned we’re going to miss an opportunity to deal with this issue,” Corker said.
Republicans in the House of Representatives are set to meet today to weigh strategies for an eventual debt-limit fight. Some have begun backing off demands for entitlement cuts, pushing instead for tax-code revisions in exchange for voting to raise the borrowing cap, which goes back into effect after May 18.
As soon as the next day, the Treasury Department will have to resort to “extraordinary measures” to stave off default, and those steps will be exhausted by October or November, according to the budget office report.
Tax receipts for fiscal 2013, which ends Sept. 30, will be 15 percent higher than the previous year, the agency said, partly because Congress allowed a payroll-tax cut to expire on Dec. 31. It also cited a January budget deal that let taxes on the wealthy rise and economic growth.
Revenue this year will climb to 17.5 percent of U.S. gross domestic product, up from 15.8 percent in 2012, according to the agency. The 40-year average is 17.9 percent.
Also driving the improvement is expected payments of $95 billion to the Treasury by Fannie Mae and Freddie Mac, the agency said.
The government took over the mortgage financiers in 2008, and they’re required to make quarterly payments to the Treasury based on their net worth, the agency said. Because of rebounding values as the housing market recovers, those remittances are rising. Last week, Fannie Mae said it will deliver $59.4 billion to the Treasury after reporting a record quarterly profit.
The deficit estimate is less than what either the White House budget office or some major banks have projected. The administration has said the 2013 shortfall would be $973 billion. Goldman Sachs Group Inc. (GS) has twice cut its deficit estimates this year, to $775 billion last month. Barclays Plc (BARC) has said it expects a $750 billion gap.
Next year’s deficit will narrow to $560 billion, according to the agency, and will reach $378 billion in 2015 -- a level unseen since the last Bush administration -- before rising again. The budget office predicted it would widen to $895 billion for 2023 as Baby Boomers swell the ranks of entitlement recipients, health-care spending rises and interest rates return to historic levels, pushing up the government’s borrowing costs.
Debt held by the public meanwhile will remain at more than 70 percent of GDP for the foreseeable future, the agency said. It has averaged 39 percent of GDP during the past 40 years.
The short-term improvement in the deficit may only make it harder for lawmakers to tackle those long-term challenges, said Bob Bixby, head of the Concord Coalition, which promotes balanced budgets.
“It could throw cold water on efforts to get some sort of grand bargain going, though I’m not sure any cold water was needed to put out that fire,” said Bixby. “It’s not like it was a raging inferno.”
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