US deficit to shrink below $1 trillion, agency predicts

The federal government will post an US$845 billion deficit this year, the first time in five years that the shortfall has dipped below US$1 trillion, though the long-term budget outlook remains grim, according to the Congressional Budget Office. In the first comprehensive analysis of the government’s finances since last month’s fiscal-cliff deal, the non-partisan agency said a surge of tax revenues will help cut the deficit to its lowest since 2008. Next year’s shortfall will total US$616 billion, according to the CBO.

Even so, the government is still projected to rack up at least US$7 trillion in deficits over the next decade, which will push up the publicly held debt to US$20 trillion by 2023, the CBO said. “Deficits are projected to increase in the coming decade, however, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance and growing interest payments on federal debt,” the report said.

The report hits Congress just as lawmakers gear up for another round of battles over deficit spending. President Barack Obama is expected to submit his fiscal 2014 budget request to Congress in mid-March, according to a budget official who requested anonymity to discuss the administration’s plans in advance of a formal announcement. House Budget Committee chairman Paul Ryan, a Wisconsin Republican, and Senate Democrats will follow with their own budget blueprints.

About US$85 billion in automatic spending cuts are due to begin March 1, and a stopgap measure funding the federal government for the first six months of the current fiscal year expires on March 27. The latest debt-limit increase, which Obama signed into law yesterday, lapses May 19.

Senate Democrats are meeting today in Annapolis, Maryland, to discuss their strategies for the coming showdowns. Majority Leader Harry Reid of Nevada has said that he wants to pare back the automatic cuts, perhaps several months at a time, with a combination of tax revenue and spending reductions.

Bloomberg