Although the federal deficit fell sharply over the last year as the economic recovery continued, this good news should not be used as an excuse to ignore the serious fiscal challenges that Washington still needs to confront.
The deficit for Fiscal 2013, which ended Sept. 30, was $680 billion. That’s down from nearly $1.09 trillion the previous year, and it marks the first time since 2008 that the annual deficit has been below $1 trillion.
Projections by the Congressional Budget Office, however, show that under current law the deficit will begin rising again within a few years. Key factors in this are entitlement spending increases and excessive tax expenditures.
In addition, the $17.1 trillion debt is expected to rise throughout the coming decade because of the additional borrowing and rising interest rates.
Federal deficits are closely linked to the state of the economy, a simple fact that is often ignored by politicians in both parties. The improving economy was a large factor in the lower 2013 deficit, just as the recession and slow recovery were critical factors in the previous trillion-dollar-plus deficits.
Treasury Secretary Jacob J. Lew and Office of Management and Budget Director Sylvia Mathews Burwell released the $680 billion deficit number along with other final budget figures for Fiscal 2013 last Wednesday.
They noted that the 2013 deficit fell to 4.1 percent of the Gross Domestic Product (GDP), a reduction of more than half since 2009.
Government receipts in Fiscal 2013 approached $2.8 trillion – or 16.7 percent of GDP, which is 1.5 percentage points higher than the previous year. Spending was a little under $3.5 trillion — or 20.8 percent of GDP, which was 1.2 percent lower than the year before. Spending fell even in absolute terms, by $84 billion.
Joint Statement by Lew and Burwell
Deficit More Than Cut in Half Since 2009 (OMB)
Eight Reasons Why America’s Fiscal Woes Aren’t Over