Since the recession that ended four years ago, the deficit of the federal budget has been above $1 trillion each year. But at present, the government’s annual deficit has dropped faster than the expectations in Washington and economists. They worry that it would be unhealthy for the economy if the deficit shrinks in its present rate.
The Congressional Budget Office released the report that estimated the deficit for the current fiscal year that ends on September 30 will drop to around $642 billion or 4 percent of the annual economic output of the United States. The figure was $200 billion below the initial estimate made by the agency three months ago.
The agency estimated the deficit to drop as little as 2.1 percent of the gross domestic product by the year 2015. Analysts said that the level would be sustainable in the long run before it goes up gradually towards the rest of the decade.
The deficits numbers showed how the economic recovery has started to bring more money to the government’s coffers. Washington has proved to be successful at cutting the deficit despite the political bickering in the Capitol. Washington has done it via tax increases and cuts in military and domestic programs.
The economy is still performing below its potential and the unemployment rate remained above 7.5 percent. Most economists warned that the deficit is going down too fast and too soon. While it is good for the budget deficit, it is bad news for the jobs deficit.
Some economists warned that the deficit remains a long term challenge due to rising health care spending on the elderly and debt service payments that are seen to eat up large portion of the budget as baby boom generation goes into retirement. Analysts said that longer term problems still need to be resolved.