Temporary Deficit Reduction
July 10, 2013
The Congressional Budget Office (CBO) recently issued new budget projections, which put Uncle Sam's red ink this year at $642 billion. It is 50 percent higher than the pre-Obama record deficit in 2008. It is adding huge obligations for tomorrow's taxpayers, says Doug Bandow, a senior fellow at the Cato Institute.
The United States faces a continuing, enduring and potentially catastrophic budget crisis. The near term is slightly less disastrous than originally thought. But without a genuine change of direction, the federal Leviathan remains headed over an economic cliff.
- The deficit is falling. Earlier this year the CBO figured the likely 2013 deficit at $845 billion. Now the organization estimates $642 billion.
- However, this reduction does not reflect spending restraint. Deficit estimates dropped significantly from February as a result of higher-than-expected revenues and an increase in payments to the Treasury by Fannie Mae and Freddie Mac.
- Because revenues, under current law, are projected to rise more rapidly than spending in the next two years, deficits in CBO's baseline projections continue to shrink, down to 2.1 percent of gross domestic product, compared to 4.0 percent this year.
- The Bush tax cuts did not destroy federal finances and impoverish the public sector, as has so often been claimed.
Last year's deficit was $1.1 trillion. This year it is likely to be $642 billion. CBO estimates that the red ink will fall to $378 billion in 2015, which is small only compared to recent deficits. Then the deficits start moving inexorably upwards. In 2016 the deficit will run $432 billion, roughly the 2008 level. In 2023 the agency figures Uncle Sam will run $895 billion in red ink, heading back toward the trillion-dollar mark.
- For the coming decade that means $6.3 trillion more in deficits. That amount will be directly added to the national debt.
- CBO discounts the total national debt by ignoring inter-governmental borrowing (that is, revenues taken from Social Security "surpluses").
- The money ultimately must be raised in the future to pay promised benefits.
CBO predicts the national debt will nearly double over the next decade, going from $11.3 trillion to $19.1 trillion.
Source: Doug Bandow, "Good News on the Budget Deficit?" American Spectator, June 28, 2013.
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