In its midyear review, the Office of Management and Budget said the deficit this year is expected to be $759 billion — $214 billion less than it had forecast in April, when President Obama released his 2014 budget plan. The administration counts $43 billion in reduced spending on defense and domestic programs — largely the result of sequestration — as contributing to the smaller deficit.
Other factors included much higher tax revenue in a year when a variety of taxes went up and an unusual payment from the federally backed mortgage finance giants Fannie Mae and Freddie Mac as a result of their improving financial condition.
The administration’s review is the latest piece of evidence that the nation’s budget deficit, which exploded after the recession began in 2007, has become less of a short-term problem.
In May, the Congressional Budget Office estimated an even lower deficit this year — $672 billion, a projection that assumes that sequestration continues. The administration, however, wants to replace the across-the-board spending cuts with alternative reductions that it says are less harmful, as well as tax hikes.
The review “shows that the Budget achieves a core goal of fiscal sustainability by putting Federal debt on a declining path as a share of the economy,” Sylvia Mathews Burwell, Obama’s budget director, wrote in a blog post Monday, adding that it “demonstrates that we do not need to choose between making critical investments necessary to help grow our economy and support middle class families and continuing to cut the deficit in a balanced way.”
The review assumes that, going forward, the administration’s budget plan will be put into effect. The plan would restore some of the money that is being slashed from domestic programs this year and spend it in future years.
But few in Washington believe that the president’s budget plan will be passed by Congress, which is struggling to find a forum to negotiate over the budget ahead of a Sept. 30 deadline to renew government funding.
After this year, if its budget plan is enacted, the administration projects that annual deficits will be somewhat larger than previously estimated. In 2014, officials project a deficit of $750 billion — $6 billion larger than the April estimate. By 2023, that is expected to shrink to $549 billion, which is $109 billion more than the administration estimated in April.
Over the decade, deficits will be shrinking because the government will be taking in more in tax revenue as the economy improves.
But they will not be shrinking quite as fast, because the economy will be somewhat weaker than earlier thought, according to administration officials who say sequestration will have a long ripple effect on the economy.
Sen. Jeff Sessions (Ala.), the top Republican on the Senate Budget Committee, said the budget projections were worrisome. “Ominously, the president provides no serious proposal for strengthening and preserving our unsustainable Medicare and Social Security programs,” he said in a statement. “The president’s plan is simply to tax more in order to spend more: avoiding any attempt at reducing the waste and inefficiency that plagues the federal budget.”