On May 14, as Washington officialdom was transfixed by the IRS scandal, the Congressional Budget Office announced that the budget deficit will shrink this fiscal year to $642 billion, or just 4 percent of gross domestic product. It’s the smallest deficit since 2008, and less than half 2009’s record $1.4 trillion shortfall. Since February, the CBO has cut $200 billion off its deficit projection for 2013 and $618 billion off its cumulative estimate for the next decade. Thanks to higher tax revenues and deep spending cuts, the deficit has been shrinking by about $42 billion a month for the past six months. The CBO projects that the deficit will fall to $342 billion by 2015, or only 2 percent of GDP.
Even so, the country’s improving finances haven’t lowered the din of partisan bickering over U.S. fiscal policy. Keynesian economists say that the deficit is narrowing too quickly, curtailing growth and threatening to derail an economy that grew a tepid 2.5 percent in the first quarter. Republican deficit hawks are unimpressed by the short-term reductions and want more cuts to head off exploding long-term debt driven by rising spending on Medicare, Medicaid, and Social Security.