White House projects shrinking deficit
The White House said Monday that the federal budget deficit for the current fiscal year will shrink to $759 billion. That's more than $200 billion less than the administration predicted just three months ago.
The new figures reflect additional revenues generated by the improving economy and take into account automatic, across-the-board spending cuts that the White House had hoped to avert.
The White House projected that economic growth would be slightly slower in the coming years than it forecast in April. The report said the automatic spending cuts that kicked in during March will slow down economic growth this year from the 2.6 percent increase it forecast for the fourth quarter of this year to a 2.4 percent increase.
But the White House sees a slightly rosier jobs picture. It projects that unemployment will average 7 percent next year and reach 6.8 percent in the final quarter of 2014. That's an improvement over the 7.2 percent unemployment it forecast in April as an average for 2014.
The 2013 budget year ending Sept. 30 will be the first one of Obama's presidency in which the deficit won't exceed $1 trillion. Obama inherited a struggling economy and record deficits. A 2011 deficit-cutting deal with Republicans has pared deficits somewhat, as did a tax hike enacted earlier this year on upper-bracket earners.
But Obama has remained at odds with Republicans over cutting benefit programs and further tax increases. The improving deficit picture seems to have taken away some of the momentum for an additional deficit-cutting bargain, but the issue may be rejoined this fall when Obama and Congress need to enact an increase in the nation's borrowing $16.7 trillion borrowing limit to avoid an economy-rattling default on the government's obligations.
Last year's deficit registered about $1.1 trillion. The White House earlier this year predicted the 2013 deficit would be $973 billion. The Congressional Budget Office has an even more optimistic $670 billion deficit projection for 2013 and it wouldn't be unusual for CBO's figures to turn out to be more accurate.
As a percentage of the economy, the new deficit would be half the size of what it was when Obama entered office. At the time, he vowed to cut the deficit in half by the end of his first term, a pledge that took longer to fulfill.
While the White House predicts improvement this year, it sees somewhat higher deficits in future years than it did in April, mostly because slightly more pessimistic predictions of economic growth would produce $384 billion less in tax receipts over that period.
Over the upcoming decade, the White House predicts accumulated deficits of $5.8 trillion; in April it predicted $5.3 trillion in total deficits over 2014-2023.
White House budget director Sylvia Mathews Burwell said that this year's deficit is less than half of the record deficit posted four years ago when measured against the size of the economy. The 2013 deficit would equal 4.7 percent of gross domestic product versus the 10.1 percent of GDP in 2009.
The report reprises longstanding Obama proposals to increase taxes on upper-income earners, curb payments to Medicare providers, and close special interest tax breaks enjoyed by oil companies and other businesses. It also would impose a less generous cost-of-living adjustment for Social Security recipients, a proposal that is opposed by many Democrats. But it steers clear of controversial cuts to Medicare and the Medicaid health program for the poor and disabled, and it leaves Obama's signature health care law untouched.
"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," Burwell said.
Sen. Jeff Sessions, the top Republican on the Senate Budget Committee, criticized the report for projecting that spending over 10 years would increase by more than 60 percent from current levels. "Ominously, the president provides no serious proposal for strengthening and preserving our unsustainable Medicare and Social Security programs," he said in a statement.
White House budget writers said the decline in the unemployment rate — which has remained at 7.6 percent for two months — has been faster than expected when they completed their initial forecast this year.
"Unemployment is now projected to decline somewhat more rapidly than in the budget projections," the report said.
The White House economic forecasts are more optimistic than those projected by the CBO and by a poll of top business economists by the Blue Chip Economic Indicators. But it is less upbeat than the projections of the Federal Reserve. For instance, while the White House believes the annual average unemployment rate in 2015 will be 6.5 percent, the Congressional Budget Office has forecast a 7.1 percent rate. The fed, on the other hand, has forecast an average 2015 jobless rate of between 5.8 percent and 6.2 percent.
The White House projects that unemployment will reach 5.4 percent in 2018, one year earlier than it projected in its budget. But joblessness is then expected to stabilize at that level for the next six years. That's still higher than the 4.6 percent unemployment the country averaged in 2006 and 2007.
The report also reflects $66.3 billion in dividend payments received by the Treasury from the government-affiliated mortgage lenders Fannie Mae and Freddie Mac. The government rescued Fannie and Freddie during the 2008 financial crisis after both incurred massive losses on risky mortgages. The companies received two of the largest bailouts of the crisis.
The recent payments reflect a housing recovery that has made the two lending giants profitable again. So far, Fannie has repaid $95 billion of the roughly $116 billion it received, while Freddie has repaid roughly $37 billion of its $71.3 billion.