While President Barack Obama has faced mostly troubling news in recent days, the mood around the White House may have gotten somewhat brighter following the release of a report from the Congressional Budget Office forecasting a narrower than expected budget deficit.
The non-partisan CBO predicted that the budget deficit will shrink to $642 billion in fiscal 2013 compared to its previous estimate for a deficit of $845 billion. The fiscal year ends on September 30th.
The budget deficit forecast by the CBO would represent the smallest shortfall since 2008, when the recent recession began.
As a percentage of gross domestic product, the deficit is expected to shrink to 4.0 percent in fiscal 2013 from 7.0 percent in fiscal 2012.
The CBO noted that the deficit would be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.
The narrower than previously forecast deficit largely reflects higher-than-expected revenues as well as an increase in payments to the Treasury by Fannie Mae and Freddie Mac.
The CBO predicted that the deficit will continue to fall over the next two years, hitting 2.1 percent of GDP by 2015, as revenues are projected to rise more rapidly than spending.
However, the agency said budget shortfalls are expected to rebound to 3.5 percent of GDP in 2023 due to the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.
If current laws remain in place, the CBO predicted that U.S. debt will equal 74 percent of GDP by 2023 and continue to be on an upward path.
"Such high and rising debt later in the coming decade would have serious negative consequences: When interest rates return to higher (more typical) levels, federal spending on interest payments would increase substantially," the CBO said.
The agency added, "Moreover, because federal borrowing reduces national saving, over time the capital stock would be smaller and total wages would be lower than they would be if the debt was reduced."
The CBO said lawmakers would also have less flexibility to respond to unexpected challenges and noted that a large debt increases the risk of a fiscal crisis.
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