WASHINGTON Feb 4 New U.S. budget deficit
estimates due on Tuesday will likely show a rapidly improving
fiscal picture over the next few years, contributing to a waning
appetite in Washington for further budget cutting.
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 Sept. 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
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
But these trends start to reverse later in the decade as
more members of the massive Baby Boom generation retire and draw
"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
"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."
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
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
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."