The U.S. budget deficit has shrunk to the smallest amount since 2008, according to new data from the Congressional Budget Office (CBO). But hold the applause — if the trend is to continue, politicians in Washington need to get to work. CBO projections expect next year to be another low, but if current laws don’t change, that deficit will climb between 2015 and 2024 up to $1 trillion.
The CBO is estimating that the budget deficit in fiscal year 2014, which ends September 30, will be $492 billion, continuing to decline from last year’s $680 billion shortfall. The deficit in fiscal 2014 is projected to be 2.8 percent of gross domestic product, compared with 4.1 percent in 2013.
“Deficits are rapidly declining,” Paul Edelstein, director of U.S. financial economics at IHS Global Insight, said, per Bloomberg. “A lot of it is coming on the revenue side, mostly from taxes — there were increases in payroll taxes last year, which are still being felt this year, corporate profits are up and they are paying more in taxes.”
Bloomberg cites an upturn in employment for the numbers, noting the dip in unemployment (6.1 percent in June) and an addition of 288,000 in payrolls last month. If the trend continues, this year would be the best in terms of job gains since since 1999.
Regardless of those improvements, the CBO warns that lawmakers need to make some changes to stop a detrimental growth in deficit over the next decade. According to the Congressional Budget Office, the yearly shortfalls in the country’s budget will rise quite a bit between 2015 and 2024, from a low of $469 billion in 2015 to about $1 trillion from 2022 through 2024. The CBO cites “the aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt” as causes for this substantial increase in deficit.
Making significant changes in budget — or anything, it seems — is not the MO of the current Congress. Right now, spending levels are set to stay the same for this year and next, according to the Bipartisan Budget Act of 2013. Both President Barack Obama and House Republicans have put their fiscal 2015 budget proposals on the table, but Congress is sitting tight until midterm elections in November.
While elections could shift power in November, it remains that the Congress has struggled to pass budgets at all in recent history — mostly notably to the effect of a government shutdown last fall. If the budgets for the next two years go through a similar process and ultimately end in minimum reforms being made, it could set the economy en route to another financial crisis.