The White House Office of Management and Budget announced Monday that it expects the federal deficit to shrink by $214 billion more than it did three months ago.
“The 2013 deficit is now projected to be $759 billion, $214 billion lower than the $973 billion deficit projected in the Budget. As a percentage of gross domestic product (GDP),” the office said in its middle of the year review. “The 2013 deficit is now projected to equal 4.7 percent, down from the 6.0 percent projected in the Budget.”
OMB chalked up the decrease in deficits to money generated by the improving economy. It also credited the housing market recovery for the revised estimates. Other experts credit tax collection, which rose 16 percent in the last quarter of 2012 (the start of the government’s fiscal year) and a $7 billion payment from mortgage giant Fannie Mae, a government sponsored enterprise. The tax revenue jumped because of dividends and bonuses paid at the end of 2012, before ‘fiscal cliff’ tax increases hit in 2013.
The White House also anticipates a better-than-expected job market. OMB found that unemployment would average 7 percent next year, then lower to 6.8 percent by the end of the fiscal year 2014. Previously it had estimated 7.2 percent for 2014.
“We have seen positive economic growth for 15 consecutive quarters. Through June, the private sector has added jobs every month for 40 straight months, with a total of 7.2 million jobs added over that period. This year alone, more than 1.2 million private sector jobs have been added so far,” OMB said in the report.
OMB’s new projections are still not as positive as those that recently issued from the Congressional Budget Office. In May, CBO predicted that the deficit would fall to $642 billion by the end of the fiscal year.
Not all news was good. OMB determined that sequestration cuts that took place in March would slow economic growth this year. The office revised downward their earlier projection of 2.6 percent to 2.4 percent.
“Sequestration is already having negative impacts on the country and the American people,” OMB found. “Although the economy has continued to grow and job creation has held steady, we could be experiencing even stronger growth and job creation were it not for sequestration.”
The rosy deficit projections are at odds with the views of some budget experts. In a recent interview with The Fiscal Times, Alice Rivlin, Washington’s premier budget expert, said the increasing health care costs that are expected to come with baby boomers' retirements will make it difficult to reduce the deficit in the long-term.
“I don’t think the [deficit] picture longer term has changed dramatically,” she said. “We still need to put Social Security on a firm foundation, and every year that passes makes it a little harder to do that.”