Falling Short-Term Deficits Provide Exit Ramp for Those Seeking No More Budget Cuts

Published Apr 15, 2014. By John Shaw.

WASHINGTON (MNI) - The Congressional Budget Office's update Monday of its ten-year economic and budget baseline gives some ammunition to those who are seeking to delay any further work this year on deficit reduction, but budget experts say the nation's long-term fiscal challenges remain as acute as ever.

It its report, the CBO said it expects the FY2014 budget deficit to fall to $492 billion, down $23 billion from what it projected in February and significantly lower than the $680 billion deficit in FY2013. The FY2012 deficit was $1.1 trillion.

For the full ten-year period, the CBO projects that cumulative deficits will be $286 billion lower than it estimated in February.

However, the CBO report also estimates there will be cumulative deficits of $7.6 trillion over the FY2015 to FY2024 period.

"I suppose those who don't want to do anything more to cut deficits can point to the slight reduction in projected deficits in the new CBO report," says Bob Bixby, executive director of the Concord Coalition.

"But you don't have to look at the CBO numbers very hard to see we still have a huge problem and the report shows that deficits will begin to rise again very soon. However, the recent decline in deficits and the coming mid-terms in November make further action on the deficit front this year very unlikely," Bixby adds.

Even before the updated CBO report, key lawmakers seized on better deficit news at the start of this year to urge a shift away from additional short-term deficit cutting efforts.

Senate Budget Committee Chair Patty Murray sent a memo to Senate Democrats on February 27 that touted the shrinking deficit as a reason to embrace different economic priorities.

"With $3.3 trillion in deficit reduction put in place over the last few years and near term deficits declining to 3 percent of the economy, we have some breathing room to focus more on creating jobs, expanding opportunity and generating broad-based economic growth now and into the future - while we keep looking for ways to tackle our long-term fiscal challenges using a balanced and responsible approach," Murray wrote.

The CBO report on Monday shows deficits rising from $469 billion in FY2015 to $536 billion in FY2016, $576 billion in FY2017, $627 billion in FY2018 and $722 billion in FY2019.

Looking further ahead, the CBO anticipates deficits continuing to widen, reaching $804 billion in FY2020, $878 billion in FY2021, $998 billion in FY2022, $1.005 trillion in FY2023, and $1.003 trillion in FY2024.

The CBO report shows annual net interest costs rising from $227 billion in fiscal year 2014 to $400 billion in FY2017 to $694 billion in FY2021 and then to $876 billion in FY2024.

Michael Peterson, president of the Peter G. Peterson Foundation, said in a statement Monday that the CBO report shows "the current period of declining deficits is a temporary phenomenon. In fact, our deficits will begin rising again in just two years - and that's before the major long-term drivers of our debt kick in."

He added: "To solve this problem for the long term, we must address the fundamental drivers of our debt, which are high and rising health care costs, an aging population, and an inadequate tax system. The good news is that solutions exist and we still have time to put a plan in place that will strengthen our recovery and build a solid fiscal and economic foundation for America in the decades ahead."