The federal deficit this year will be $642 billion, according to an estimate Tuesday from the Congressional Budget Office that marks the first time President Obama will have overseen a deficit of less than $1 trillion.
Powered by this year’s tax increases, revenue to the Treasury Department will rise by 15 percent in 2013, far outpacing economic growth. Meanwhile, discretionary spending has been curtailed dramatically, leaving the budget in far better shape than it was two years ago.
The CBO also had some good news about health care costs, saying prices are rising much slower than the agency expected. Indeed, CBO said the government spent 5 percent less on Medicare and Medicaid in 2012 than it predicted two years earlier, when Mr. Obama’s health care act was approved.
Last year’s deficit was nearly $1.1 trillion, which means the government’s fiscal posture will have improved more than $400 billion in one year.
The CBO said the good news will continue for a few more years as spending grows slower than taxes. But by the end of this decade, skyrocketing interest payments on the federal debt, coupled with higher Social Security and Medicare costs, will send the government’s finances tumbling again.
“Such high and rising debt later in the coming decade would have serious negative consequences,” the CBO said.
The $642 billion deficit would be 4 percent of the gross domestic product, and that figure will drop to about 2 percent in 2015 before rising again as spending picks up, the CBO said.
The estimate for fiscal year 2013, which ends Sept. 30, is about $200 billion below what the CBO predicted three months ago.
But the Concord Coalition, a deficit watchdog group, warned lawmakers not to get complacent.
“A lower deficit is good news but hardly the end of the story,” said Robert L. Bixby, Concord’s executive director. “For the most part, it reflects a recovering economy and other factors that do not affect the long-term structural mismatch between spending and revenues.”
Mr. Bixby said the good news on health care costs easily could be reversed.
The biggest change this year has been a huge bump in taxes because of an improving economy and the expiration of the Bush and Obama tax cuts for the richest Americans and the expiration of Mr. Obama’s payroll tax cut.
Also helping are low interest rates, which have kept payments on the federal debt at incredibly low levels. The CBO said interest payments will jump $3 billion to reach $223 billion this year, despite nearly $750 billion more in debt held by the public.
By the end of the decade, however, debt payments will be more than $800 billion a year.The deficit peaked at $1.4 trillion in fiscal year 2009 — which spanned the Obama and Bush administrations — then dropped to $1.3 trillion 2010 and 2011, and fell to $1.1 trillion last year.