New Treasury Department figures confirm what the Congressional Budget Office (CBO) projected in the spring: the budget deficit for fiscal year 2013 will be dramatically lower than it was the past four years. The government recorded a $148 billion deficit in August, 22.5 percent smaller than in the same month of 2012, and is on track to total a $642 billion annual deficit when the fiscal year ends on September 30.
Days before the Treasury Department release on August revenue and spending, the CBO updated its statistics on the ratio of debt to gross domestic product. A spring report had projected debt-to-GDP ratios of 76 percent in 2014, 71 percent in 2018, and 74 percent in 2023, but the CBO now says the ratio will fall below 70 percent in 2017 and stay there for four years. Debt-to-GDP is now expected to be 71 percent in 2023 – a difference of about $500 billion in a nearly $17 trillion economy.
These figures reinforce a key point in the argument for resetting the fiscal policy debate: Congress can afford to invest in job creation right now. While Republicans remain committed to the idea of austerity (without being able to pass specific appropriations bills that adhere to the abstract cuts imposed by sequestration), falling deficits and debt levels undercut their argument.
Meanwhile, Congress has already enacted $2.4 trillion worth of austerity measures in the past two years, nearly all of it in the form of spending cuts. Those policies have helped push deficits to their current lows. The fiscal austerity that has helped drive the deficit down has also undermined economic growth, not just in 2013 but for years to come. Cuts to education programs, safety nets, infrastructure investments, and research programs will actually cost the country far more down the road than they save today. The falling deficits and lowered debt-to-GDP projections give the country room to enact targeted spending measures that would kick the economy into the sort of higher gear it needs to bring unemployment back down to pre-recession levels.
The looming end of the fiscal year also signals a renewed fight over spending levels for the coming year. The CBO confirmed yesterday that the spending levels Republicans have proposed violate the terms of sequestration by giving the Department of Defense $20 billion more than is allowed by the law mandating the arbitrary, damaging cuts.