In the past two-and-a-half years, we have made astounding progress toward reducing the U.S. federal budget deficit. In fact, as a result of our nation’s improved economy, enormous spending cuts, and modest revenue increases, the deficit—as projected by the Congressional Budget Office—is down by more than $4.5 trillion over the 2013–2020 period from what it was expected to be back in August 2010. And that’s probably understating how much improvement there’s actually been.
In August 2010 the Congressional Budget Office projected that the federal budget deficit would total $11.2 trillion from 2013 through 2022, under the “alternative” assumptions that all the Bush tax cuts would be extended permanently, along with a raft of other expiring tax cuts. The 2010 projection also assumed that a certain category of spending called “discretionary” spending would continue at 2010 levels, adjusted only for inflation. Neither of those assumptions turned out to be true. Since 2010 we’ve cut discretionary spending dramatically, setting it on a path that is far below the 2010 levels, and we allowed some of the Bush tax cuts to expire. The result is a much-reduced budget deficit.
This can be seen clearly in the Congressional Budget Office’s most recent budget projections. Whereas the August 2010 projection has $11.2 trillion in deficits from 2013 through 2020, the February 2013 projection has $6.7 trillion—a $4.5 trillion reduction. This projection assumes that:
- The sequester—the large, automatic, across-the-board spending cuts scheduled to begin in March—will be repealed, without Congress paying for it.
- The Medicare Sustainable Growth Rate—a formula that will automatically reduce payment rates for Medicare doctors—will be fixed, without Congress paying for it.
- A smaller but still substantial list of expiring tax provisions will be extended, without Congress paying for them.
If instead Congress pays for those changes—as it did when it pushed the sequester back by two months as part of the so-called fiscal cliff deal—then the deficits from 2013 through 2020 will total $5 trillion, still down an astonishing 55 percent from the August 2010 projection. Furthermore, if we take into account the savings from the drawdown in Iraq and Afghanistan, the overall amount of deficit reduction gets even bigger. In August 2010 the Congressional Budget Office projected that we would spend $1.4 trillion from 2013 through 2022 on “overseas contingency operations.” Their latest budget outlook puts that spending at less than $900 billion over the same time period—savings of $500 billion. All told, that’s a reduction of $6.7 trillion from the deficit projection of August 2010.
Back then the Congressional Budget Office thought the 2020 deficit would be 7.8 percent of gross domestic product in 2020. Now it projects that the deficit in 2020 will be 3 percentage points lower than that (4.8 percent), even with the assumption that Congress will repeal the sequester without paying for it, fix the Sustainable Growth Rate formula without paying for it, extend expiring tax provisions without paying for them, and continue spending hundreds of billions of dollars for the war in Afghanistan. If Congress does pay for those changes, and the drawdown in Afghanistan continues as scheduled, the deficit will instead be about 3 percent of GDP in 2020—nearly 5 percentage points lower than the August 2010 projection.
Whether you think we still need a lot more deficit reduction, only a little more, or none at all, there is one thing we should all be able to agree on: Our fiscal situation over the medium term has improved dramatically in the past few years.
Michael Linden is the Director for Tax and Budget Policy at the Center for American Progress.