Glee

There is quite of bit of giddy glee surrounding the fact that the federal deficit seems to be shrinking.  The original projection for the 2013 deficit was approximately $900 billion.  Now analysts are forecasting $775 billion (or even lower) … a drop of $125 billion … see: NY Times Story.  How can this be?  We already knew that our government had overspent its continuing resolution “budget” by $30.5 billion for the first five months of this year … see: CNS News Story.  So for the next seven months from March 1^st until October 1^st, the deficit projection will have shrunk by $156 billion ($125 billion + $31 billion).  Yes, we have had tax increases (payroll tax stets, higher tax rates on high-income earners, and numerous other money grabs hidden under Obamacare) and $43 billion of spending cuts under the sequestration agreement, but a 17% deficit reduction (or almost 30% on an annualized basis) is quite a bit beyond most economists’ forecasts and my own expectations (see: The Uninformed Voter).

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Is this deficit reduction real?  Nancy Pelosi credits Obamacare for this reduction … see: Breitbart Story.  And the Congressional Budget Office (CBO) points to Obama’s tax increases on the wealthy … see: The Hill Story.  But, longer-term, everyone seems to agree that a short-term reduction in federal deficits will disappear by 2015 because of U.S. entitlement programs … see: Money Magazine Story.  That is, this will occur unless and until we come to a “grand bargain” on entitlement reform.  I don’t know about you, but I am not holding my breath.  One last thought, if the Democrats can convince American voters that increasing taxes results in lower deficits (a distinct possibility), then we are likely in for another economic slowdown and some rough fiscal sledding ahead.

One thing also not to be overlooked is that this year’s new budget deficit projection is still $317 billion above what President George W. Bush posted in his last full year in office (2008) … which was $458 billion.

Afterward: Actually, new government forecasts place this year's deficit at $643 billion ... see: AP Story.  Yet the Treasury Dept. is having to stand on its head to avoid cracking the debt limit.  Something is fishy here ... the projected deficit is another $132 billion down from what Goldman Sachs recently forecast above (and Treasury Secretary Lew is an old Goldman alum) ... and a $288 billion decrease in the deficit in the last 7 months of this fiscal year.  How can this be?  Is the government cooking its finances just like it cooked the unemployment data last September?