US deficit dives -- but not for long

The Congressional Budget Office says new taxes and spending cuts bridge the divide but may hinder economic growth.

By Jason Notte Feb 6, 2013 2:30PM
Image: Dollar bills floating over U.S. Capitol -- CorbisGive yourself a pat on the back, America: Your new tax burden just took the deficit below $1 trillion for the first time in five years.

The Congressional Budget Office projected Tuesday that the gap between taxes and spending will fall to $845 billion this year, making the first time it has limboed under $1 trillion since 2008, before President Barack Obama took office.

The fiscal cliff gets half the credit on this one, as the tax increases imposed on Jan. 1 helped whittle down the deficit, but the Washington Post points out that the block of spending cuts to the Pentagon and elsewhere commonly known as the sequester will bridge the gap as well.

Unfortunately, the CBO also says, those measures will shave about 1.25 percentage points off economic growth -- as the Post's Wonkblog has charted here -- and should cost the nation about 1.5 million jobs.

In an attempt to avoid that hit, the president has asked Congress to replace the sequester spending cuts slated to go into effect March 1 with a temporary debt-reduction package that would eliminate deductions and loopholes for the oil industry and wealthy Americans and cut farm subsidies. Republican lawmakers offered their response: Good luck with that.

House Speaker John Boehner said Tuesday that his party would oppose any further tax hikes and said the sequester was Obama's idea in the first place. House Budget Committee chairman and failed GOP vice presidential candidate Paul Ryan has called CBO's deficit projection "unsustainable" and touted a plan to The Associated Press that would balance the budget by 2023, but would cut $1 trillion in spending that year alone.

Beyond 2013, the CBO is predicting mixed results at best. In 2014, economic growth should hit 3.5% by the end of the year. Government spending cuts, however, should push the jobless rate above 7.5% for a sixth straight year, the CBO said, continuing the longest stretch in 70 years with unemployment that high. Still, the deficit should fall to roughly $430 billion by 2015, which would reduce it to 2.4% of the overall economy.

Meanwhile, the CBO suggests that spending on health care programs, including Medicare, Medicaid, child health insurance and new insurance subsidies, will continue to increase. Though Medicare and Medicaid spending fell 5% below CBO projections last year, about 27 million people will be insured thanks to the new health care law by 2022. That could bring the deficit back up to $1 trillion by the end of the next 10 years.

More on moneyNOW

Feb 6, 2013 5:49PM

Both parties are still focused on their personal agendas passing out kool-aid to everyone, but not focusing on Americas needs. Both sides are throwing up large smoke screens to keep people distracted from the upcoming financial collapse. IE. gun control, the deficit, immigration, Obama Care, tax the rich, entitlements, Gay rights, abortion, on and on. These are all important issues, but Americas house is on fire and both parties are arguing over the type of carpet we need.  We have to put the fire out first, Jobs, Jobs Jobs but know one is focusing on most important issue. At this rate Americas house will be burnt down but we will have a real nice roll of carpeting sitting on the front lawn. We are in big trouble.          

Feb 6, 2013 2:54PM
Decrease the Budget Deficit by increase employment producing large tax revenues, rather than cuts in food for children, cuts in social services, and cuts in Medicare and the like. stop the abuse against the people of America to pay for the tremendous spending with no gains during the Bush and Cheney years of faulty presidency, lack of regulation of Wall Street and Large banks. It will take a long time for Obama and the Democrats to correct such a rampant spending of people's money from years 2000 to 2008.
The herd of Republicans are against anything that is good and progressive for the citizens of our country. They can't compete with Obama's  tremendous ability to bring facts and the truth out and very easily translate his feelings and good desires for a prosperous America, the best progress to the large percent of the population. The Party Tea Party and Republican Party will not survive much longer opposing every good thing for the middle class, the poor, the hungry , the jobless, the hard working American. The Republican party is in it's way out to a complete extinction in the very near future. Thanks to the Merciful Lord for that gift to free all citizens of nearly five years of political and economical abused by Bush, Cheney, Cantor , Romney, Paul Ryan the liar, Boehner, and the old worthless Mitch McConnell! we Americans are now very, very closed to brake the chains of your punishment, long years of hunger, and misery with your false political agenda of lies, and conspiracy against all Americans! Drill more and sell more oil to the people that nearly destroy our economy with oil manipulatios, this will pay for the Defict, not cut, cuts of the American people needs!
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