Is A Smaller Budget Deficit A Lasting Trend? The Congressional Budget Office has sharply revised down the outlook for the federal budget deficit. Some temporary factors are being cited for the projected improvement. Keeping the deficit on a downward path may depend on the economy, analysts say.
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Is A Smaller Budget Deficit A Lasting Trend?

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Is A Smaller Budget Deficit A Lasting Trend?

Is A Smaller Budget Deficit A Lasting Trend?

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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As the economy improves, the federal budget deficit is growing dramatically smaller. The Congressional Budget Office has sharply revised its estimates from just a few months ago - knocking off $200 billion in borrowing. The budget projection is now $642 billion in the red.

Here's NPR's John Ydstie.

JOHN YDSTIE, BYLINE: The $642 billion deficit is still large, but far better than the trillion dollar plus deficits of the previous four years. And it lowers the relative size of the deficit to four percent of the size of the economy, down from just over 10 percent in 2009.

MAYA MACGUINEAS: That's a lot of good news, and when it comes to the budget we should take the good news where we can get it.

YDSTIE: That's Maya MacGuineas, president of the Committee for a Responsible Federal Budget, which has campaigned to reduce the federal deficit.

MACGUINEAS: The problem is a lot of this comes from temporary savings and it doesn't mean that we're on a path that's sustainable.

YDSTIE: There are a couple of big temporary factors behind the dramatic improvement since February. One is news that mortgage giants, Fannie Mae and Freddie Mac, are making big dividend payments to the government this year. The government bailed them out and took them over during the housing crisis.

The second temporary factor is higher than expected tax payments from well-off taxpayers. Many sold stock and other assets late last year to avoid higher tax rates that took effect in January.

Since the government's 2013 fiscal year began October 1st of last year, the taxes paid on the income from those sales will help to reduce the 2013 deficit. While MacGuineas sees a temporary deficit improvement, Dean Baker - co-director of the Center for Economic and Policy Research, a liberal think tank - has a different take-away from the CBO report.

DEAN BAKER: Well, I think when you look at it, you're really hard-pressed to see what the deficit problem is.

YDSTIE: Baker points out that the improvement isn't just a one year phenomenon. He notes that deficits drop through 2015 in the CBO projection and rise in the later years of the decade, largely because the CBO projects that interest rates will rise, not because of growing government spending. He argues deficits could actually be forced lower if the Congress provided some stimulus for the economy now.

BAKER: If we could have a boost to growth, both short-term from boosting demand and long-term by increasing the economies productive capacities, we're likely to be looking at a better budget situation, say come 2020-2021, simply because the economy will be more productive, we'll have more people working.

YDSTIE: But that's just that kind of talk that's got deficit hawk Maya MacGuineas worried. She's a little concerned that today's good news will cause Washington to lose the sense of urgency it needs to deal with the longer term deficit problems.

MACGUINEAS: We still haven't dealt with the real driving fiscal challenges in our budget: the aging of the population, growing health care costs and an outdated tax system that doesn't raise revenues in the best way that it could, that could help grow the economy even more.

YDSTIE: Dean Baker argues that even on the health care front, there's some good news, with costs rising more slowly in recent years. MacGuineas acknowledges some slow down in health care inflation but says it will take many more bites at the apple to get government spending on health care under control.

John Ydstie, NPR News, Washington.

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