The administration has lowered its deficit projections from last February but cautions that further action is needed to invigorate the economy in the short term and hold down deficits in the long run.
Jack Lew, director of the Office of Management and Budget (OMB), said its Mid-Session Review “largely confirms what we already know and what the recent (Congressional Budget Office) analysis showed: We need to get back on a sustainable fiscal path and invest in long-term economic growth and job creation.”
The review, released last week, projected the 2011 deficit at $1.316 trillion, a $329 billion decrease from last February’s estimate. The latest number equals 8.8 percent of the economy (GDP), down from 10.9 percent in February.
The reasons: higher government receipts than expected, re-estimates of mandatory spending, and less discretionary spending than requested in the President’s budget.
More important than the current deficit, however, is the deficit spending that is expected to add trillions of dollars to the federal debt over the next 10 years. The promised spending cuts in the recent debt limit deal caused OMB to also lower its long-term deficit projections.
It should be remembered, however, that many of the promised long-term savings are highly uncertain. Most of them have yet to be identified.