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The era of dramatically falling budget deficits is over
23 january 2015

CBO

Big deficit declines no more: the CBO’s most recent projections.

The U.S. budget deficit has nose-dived over the past few fiscal years. That’s going to change this year, observers say.

Budget-watchers believe the difference between the federal government’s revenue and spending will either fall only slightly or rise this fiscal year, after a string of big declines. In a research note on Thursday, Goldman Sachs’s Kris Dawsey pointed out that the deficit for the first three months of fiscal 2015 is nearly the same as seen a year ago. And as a result, Dawsey says Goldman’s forecast of a fiscal 2015 budget deficit of $525 billion “is broadly on track.”

If that forecast pans out, it would be more than 8% above the fiscal 2014 deficit of $483 billion, which happened to be the lowest shortfall of Barack Obama’s presidency.

Such an increase would be a big change from the last few years, when the deficit has fallen dramatically. In fiscal 2014, for example, the deficit fell 29% from the prior year, as tax receipts were significantly higher and spending was little changed. The decline for 2013 was even bigger, at 37%.

The deficit hit a peak of $1.4 trillion in fiscal 2009 as the government struggled with the recession, and the annual shortfall only dipped below $1 trillion in fiscal 2013. The U.S. government’s fiscal year runs from October through September.

Back in August, the Congressional Budget Office estimated that the deficit would drop again in fiscal 2015, but only by about 3%, to $469 billion. The nonpartisan agency is due to release new estimates on Monday.

In August, the CBO said that deficits would resume rising in 2016, as the government spends more on health-care costs for aging baby boomers and interest on the federal debt. The CBO has warned that the ballooning amount of federal debt caused by growing deficits would increase the risk of a fiscal crisis.

Slightly smaller or rising deficits would put federal red ink back in the spotlight for the final two years of Obama’s presidency. And with Republicans now in charge of both houses of Congress, Washington is poised to see a return of budget battles. Already, the new chairman of the House Budget Committee, Rep. Tom Price of Georgia, has said he wants to balance the budget in fewer than 10 years. Obama has in the past rejected calls for a balanced budget, and will reportedly seek a 7% increase for discretionary spending in the budget proposal he will submit to Congress on Feb. 2.

Thanks in part to shrinking deficits, Obama said in his State of the Union address on Tuesday, “we have risen from recession freer to write our own future than any other nation on Earth.” But, Republicans say, Obama isn’t looking far enough ahead.

“The president believes we should continue pursuing the same failed policies that have contributed to an economic recovery that’s leaving the middle class behind and a long-term budget crisis that threatens our future prosperity and national security,” Price said in a statement after Obama’s speech.

Robert Schroeder 

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