Federal Deficit Down, Debt Still Rising

Federal deficitThe federal deficit fell sharply in the fiscal year that ended Sept. 30 ? but the federal debt continues to rise.

The deficit for the recent fiscal year totaled an estimated $483 billion, the Treasury Department said Wednesday. That?s roughly a two-thirds improvement over the $1.4 trillion deficit in fiscal 2009, President Barack Obama?s first year in office and amid the Great Recession.

The Treasury Department?s latest figures reflect a number 29 percent, or $197 billion, lower than the fiscal 2013 deficit, and $165 billion less than forecast by the president in his proposed budget.

Importantly, the deficit as a percentage of the broader economy shrunk to 2.8 percent, the lowest level since fiscal 2007 and below historical averages. In fiscal 2013, this number was 4.1 percent of the economy, and in fiscal 2009 it was at a whopping 9.8 percent.

?Going down to below 3 percent of GDP (gross domestic product) is a meaningful step,? Treasury Secretary Jacob Lew said in a briefing with reporters.

The improving deficit numbers, while welcome, mask the fact that debt held by the public continues to go up. It stood at almost $12.8 trillion at the end of fiscal 2014, up from just under $12 trillion at the start of the fiscal year.

And most budget analysts project that absent action by Congress to further cut spending or raise taxes, the deficit will return to an upward climb just a few years from now.

?The large effects from the Great Recession have subsided ? but there is not a change in the fundamentals at all,? said Robert Bixby, head of the budget watchdog group Concord Coalition. ?As turmoil subsides from the economy, we still have an underlying structural deficit that is just as bad as it ever was.?

Congress and the White House have, since 2000, been unable to agree on structural changes to Social Security and Medicare to reduce their expected large strain on federal spending as baby boomers hit retirement in mass. And the huge debt is a time bomb because it must be paid off through new borrowing. Should interest rates rise from today?s historical lows, it would mean servicing that debt would eat up more and more of the federal budget.

Lew acknowledged that debt remains high but said the improving economy and falling deficit help stabilize that debt picture. White House projections have outstanding debt as a percentage of the total economy falling from 2016 forward.

Lew noted Wednesday that the economy has improved by ?almost every measure.? That cleaned up language from Obama recently that by all economic measures Americans are better off. In fact, wages remain flat and the midpoint income for American families has dipped slightly.

Similarly, Shaun Donovan, director of the White House Office of Management and Budget, noted that health care costs are growing at the slowest rate in 50 years, and he said the sweeping revamp of health care called the Affordable Care Act ?was contributing to that.? In the past, administration officials had credited the act for slowing health care costs, but economists said it was one of several factors.

Source: MCT Information Services