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 The Congressional Budget Office is expected to revise downward its
deficit forecasts over the next 10 years. Many analysts believe that
major deficit reduction is highly unlikely before President Barack
Obama leaves office in 2017, and lower deficit forecasts could
reinforce that view.
The CBO in May last year forecast a $560 billion deficit for fiscal
2014, which ends September 30. That matches the median estimate from
29 private economists polled by Reuters in January, but some of
those forecasts came in as low as $400 billion.
The fiscal 2013 U.S. deficit fell to $680 billion after four
straight years of $1 trillion-plus deficits.
An improving economy coupled with strong stock market gains and
corporate profits last year are expected to boost spring tax
collections as Afghanistan war costs and unemployment-related
outlays wane. A recovering housing market also may increase
contributions from government-controlled mortgage finance firms
Fannie Mae and Freddie Mac.
The new budget estimates also may reflect slower growth in health
care costs, which could reduce projected costs for big federal
programs such as the Medicare health program for older Americans.
But these trends start to reverse later in the decade as more
members of the massive Baby Boom generation retire and draw
benefits.
"In the short run, the numbers have significantly improved," said
Shai Akabas, an economist at the Bipartisan Policy Center. "But that
reverses in the long run because of the growing cost of the
entitlement programs" such as Medicare and the Social Security
retirement program.
By 2022, deficits could be back near $900 billion, according to the
last CBO estimates — a trend which is not expected to change with
the latest forecast unless Congress raises taxes or cuts benefits.
"I worry if these numbers look better, it's going to lead to
complacency," said Greg Valliere, an analyst with Potomac Research
Group, which advises investors on Washington politics. "The problem
would be ignored for two to three years."
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BUDGET RHETORIC COOLS
After three years of bitter budget fights that culminated in a
16-day government shutdown over funding last October, the budget
rhetoric already is cooling.
Republicans in the House of Representatives have thus far refrained
from making any major demands over a debt limit increase that the
U.S. Treasury maintains is needed by late February.
At a retreat last week, House Republicans agreed on the need to
raise the borrowing limit, but did not settle on any specific
demands, a party aide said, adding, "The general feeling was that no
one wanted it to be a showdown like last time."
On Monday, Treasury Secretary Jack Lew said that the improvement in
the U.S. fiscal outlook had bought Washington time to deal with the
larger, structural problems.
"I'm not sure this is the year for the long-term fiscal challenge to
be dealt with," Lew said at a Bipartisan Policy Center event. "We
have a little time to deal with the longer-term.
Ethan Siegal, who heads the Washington Exchange and also advises
institutional investors, predicted there would be no debt ceiling
crisis and said fiscal issues were "pretty much a non-event" for
2014.
His advice for those still hoping for a "grand bargain" to reduce
federal benefits costs or raise tax revenues: "Take a chill pill and
wait until 2017. Nobody is truly interested in taking on the
Medicare program."
(Reporting by David Lawder; editing by Caren Bohan and Lisa
Shumaker)
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