Rising revenues shrink U.S. deficit by $203B

WASHINGTON - The U.S. budget deficit is shrinking considerably more quickly than previously thought and revenue growth will outpace spending increases over the next two years, the Congressional Budget Office said on Tuesday.

 

The non-partisan budget watchdog slashed its deficit forecast for the current fiscal year by $203 billion from estimates made in February, to $642 billion - the smallest budget shortfall since 2008. The deficit for fiscal 2015 will shrink to $378 billion, or just 2.1 percent of gross domestic product, the CBO said.

 

The revised estimates, like those issued in February, are based on current tax and spending laws and assume that $1.2 trillion in automatic "sequester" spending cuts that began on March 1 remain in place for the next decade.

 

The CBO cited rising personal income tax revenues and higher contributions from mortgage finance companies Fannie Mae and Freddie Mac for the lower near-term deficits. It estimates a $95 billion increase in payments to the Treasury this year from the two firms, which were seized by the government in 2008 to save them from collapse.

 

"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, falling to 2.1 percent of GDP by 2015," the agency said in its report.

 

The reductions, however, do not continue at the same pace, it said, noting that deficits will begin to expand again later in the decade due to rising pension and healthcare costs for the aging baby boom generation.

 

For the next 10 years, the CBO shaved its cumulative deficit forecast by $618 billion, to $6.34 trillion.

 

But even with deficits at that level, debt held by the public is expected to stay above 70 percent of GDP, the CBO said, far higher than in previous decades. As recently as 2007, federal debt equaled 36 percent of GDP.  — Reuters