President Obama pledged in 2009 to halve the deficit by the end of his first term, an audacious statement that Republicans highlighted during last year’s election as a broken promise.
Better late than never. Obama appears to have pulled off his pledge during the first year of his second term. The Congressional Budget Office projected on Tuesday afternoon that the 2013 deficit would total $642 billion, about $203 billion less than its February estimates.
Mission accomplished. In the aftershocks of the financial crisis, the deficit ballooned to $1.41 trillion in 2009 and floated above the trillion dollar threshold for the next three years. The revised estimates indicate the national debt will be $355 billion lower than previously expected when Obama leaves the White House in January, 2017.
But don’t expect the feud with House Republicans over the deficit to stop. The autumn showdown over the debt ceiling will continue as scheduled, because the improved outlook stems from two short-term factors.
Fannie Mae and Freddie Mac—the troubled mortgage giants under federal conservatorship since 2008—are expected to repay $95 billion this year in return for years of taxpayer assistance. That explains about half of the CBO revisions.
The rest emerges from increases in tax revenues, largely the result of higher rates on top earners and higher personal income. The IRS will collect an additional $105 billion as a result.
However, the long-term trends still remain. Federal spending hits an inflection point in 2016, as baby boomer retirements start to mount and the deficit returns to an upward trajectory. The national debt by 2023 continues to be a historically high 73.6 percent of Gross Domestic Product.
The 2014 Obama budget would eliminate this V-shaped inflection and put the deficit on a downward slope, even if the total debt stays high. House Republicans have pushed for the dramatic overhauls of Medicare and Social Security to contain deficits that are expected to climb to cataclysmic levels after the costs of baby boomer expenses take their full hold starting in 2023.