The federal budget deficit has dropped to less than $500 billion for the first time since President Obama won the White House, the Congressional Budget Office reported in new estimates Wednesday that reveal a slowdown in spending coupled with a giant jump in taxes paid into Uncle Sam.
The deficit for fiscal year 2014, which ended Sept. 30, totaled just $486 billion, or almost back to the $459 billion notched in 2008, which was the last full year of the Bush administration. As a percentage of the economy, this year’s deficit is even smaller than that 2008 figure.
“Relative to the size of the economy, that deficit — at an estimated 2.8 percent of gross domestic product (GDP) — was slightly below the average experienced over the past 40 years,” the CBO said.
And it means Mr. Obama has smashed his own self-imposed goal of cutting the deficit in half from its peak of $1.4 trillion, and nearly 10 percent of GDP, in 2009.
Taxes have surged in the last two years, with government revenue crossing the $3 trillion mark for the first time in history in 2014. By contrast, spending, which had leapt to 3.6 trillion in 2011, fell in 2012 and 2013, and rose only 1 percent, or $44 billion, in 2014.
New spending on Medicaid and Obamacare’s subsidies for health insurance purchased on the exchanges rose by $49 billion, which was more than the overall increase. Social Security spending rose 5 percent, or $37 billion, while the government’s student loan subsidies boosted education spending.
On the other side of the ledger, the Defense Department withstood a 5 percent cut, totaling $30 billion, and unemployment benefit spending dropped as the jobless rate declined.
Spending began to drop after Republicans took control of the House in 2011 and began to battle Mr. Obama over his budget plans. A series of spending cuts, including the budget sequesters, helped keep spending in check.
On the revenue side, Mr. Obama pushed through a tax hike for the wealthiest at the beginning of 2013, and the recovering economy has helped boost corporate income taxes by 17.5 percent over the last year.
The White House budget office didn’t respond to a request for comment, but outside budget analysts said the good news should be tempered by the dangers that still lurk ahead.
“While the deficit has indeed dropped significantly, this drop followed a massive increase, was largely expected, and does not suggest the country is on a sustainable fiscal path,” the Committee for a Responsible Federal Deficit said in its analysis. “Currently, debt levels are at historic highs and projected to grow unsustainably over the long run.”
Indeed, CBO’s projections from over the summer signal that $1 trillion deficits will return within a decade, and debt will also steadily grow.
Driving that long-term debt is entitlement spending, particularly major programs such as Social Security, Medicare and Medicaid.
Net interest on the debt will also rise quickly in future years as interest rates rise. But for now, low rates continue to help keep the deficit down. The government paid $271 billion in interest costs in 2014, the CBO said.
Final 2014 numbers will be released by the Treasury Department later this month.
• Stephen Dinan can be reached at sdinan@washingtontimes.com.
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