Budget deficits have fallen sharply in recent years. In fiscal year 2009, the deficit was about $1.4 trillion, equivalent to 10.1 percent of the economy as measured by gross domestic product (GDP). Now, the CBO projects a deficit for 2014 of $514 billion, which is 3.0 percent of GDP. That means as a share of GDP, this year’s deficit will be less than one-third of what it was five years ago. The CBO projects an even lower budget deficit of 2.6 percent of GDP in 2015.
Unfortunately, CBO’s report also projects that total deficits over the next decade will be $1 trillion higher than they previously projected in May 2013, but the reason for this change should serve as a further wake-up call for Congress to focus on the economy. Since May 2013, CBO’s spending projections have actually fallen by $600 billion over ten years. But at the same time, tax revenue will be $1.6 trillion lower, primarily due to slower economic growth.
Falling budget deficits in recent years may seem like good news, but this is actually the result of both positive and negative developments. On the positive side, health care costs are growing slower than expected, which saves money for federal health programs. In January 2011, the CBO projected that Medicare would cost the government $6.5 trillion from 2012 to 2021. In today’s report, it estimates that Medicare will cost $5.8 trillion over the same period, meaning about $700 billion in savings. Projected Medicaid spending is also down about $500 billion over the same period. The other good news is that paying interest on the national debt is now projected to cost much less than before. Comparing the CBO’s January 2011 report with today’s, projected interest payments from 2012 to 2021 have fallen by about $1.4 trillion.
However, some of the deficit reduction has been the result of misguided austerity in Congress. It has repeatedly slashed sectors that are critical to getting our economy back on track, such as job training and scientific research. Had these counter-productive choices not held back the economy, 2.4 million additional jobs could have been created since 2010. If Congress does not reverse course, the outlook does not look good. With over $1 trillion in cuts projected over the next ten years, nondefense discretionary spending will fall to the lowest level ever as a share of GDP since the federal government started tracking this category of spending in 1962.
One of the worst outcomes of Congressional austerity was allowing emergency unemployment benefits to expire for over a million Americans who have been unemployed for at least six months. Millions of unemployed workers rely on these benefits to keep their families out of poverty while they look for work. Reduced benefits also mean reduced consumer spending, which leads to fewer jobs and slower economic growth. If Congress fixes this mistake and extends emergency unemployment benefits, the CBO estimates that GDP will increase by 0.2 percent and 200,000 additional jobs will be created this year.
Instead, Congressional Republicans are pointing to the slightly higher budget deficits that would result from extending unemployment benefits and refusing to pass an extension until Congress can agree on how to pay for it. But the latest CBO projections reveal that there is no reason for Congress to hold up unemployment benefits over deficit concerns. That’s because projected spending on unemployment benefits has already fallen substantially over the last few years. In January 2011, the CBO projected that the federal government would spend $604 billion on unemployment insurance over the next decade, which assumed that extended benefits would expire. Now it projects that the same programs will cost $525 billion over the same ten-year period. A full year extension of emergency unemployment benefits would cost $26 billion, which means Congress can pass it and still spend over $50 billion less over a decade than the program was expected to cost back in 2011.
Today’s CBO report shows that budget deficits are not an immediate concern. At some point, Congress will need to confront our long-term deficits, where budget projections looking several decades into the future remain concerning. Reducing long-term deficits will require many difficult choices, but the choice before Congress today could not be simpler: renew emergency unemployment benefits or abandon the workers and families who are struggling more than anyone else to make ends meet.
Harry Stein is the Associate Director of Fiscal Policy at the Center for American Progress Action Fund.
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