Lower deficit could slow any budget deal

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WASHINGTON (AP) — The good news is the budget deficit for the current year is projected to come in well below what was estimated just a few months ago. The bad news for deficit hawks is that the development could further curb the already slowing momentum for a budget pact this year.

A Congressional Budget Office study released Tuesday cites higher tax revenues and better-than-expected payments from government-controlled mortgage giants Fannie Mae and Freddie Mac as the key reasons for this year’s improved outlook. The budget office now predicts a 2013 budget deficit of $642 billion, more than $200 billion below its February estimate. This year’s shortfall would register at 4 percent of the economy, far less than the 10.1 percent experienced in 2009, when the government ran a record $1.4 trillion deficit.

While the recovering economy is producing greater revenues, the improving deficit picture also reflects the accumulating effects of prior rounds of spending cuts — mostly tamping down day-to-day agency budgets — and January’s tax hike on wealthier earners.

Often lost amid Washington’s budget battles is that the nation’s dysfunctional capital city actually has had success in cutting the deficit — up to $3.9 trillion over the upcoming decade.

Now, the improving picture seems likely to make it more difficult for events to force Washington’s exhausted budget combatants closer to a deal. For starters, it means that the deadline for increasing the government’s borrowing cap has been postponed until October or November, the CBO said. It had been expected that lawmakers would have had to act this summer to increase the so-called debt limit, which could have been a catalyst for a broader budget deal.

Last year’s deficit was $1.1 trillion, capping four consecutive trillion dollar-plus deficits during President Barack Obama’s first term. The accumulated federal debt currently exceeds $16 trillion, almost double what is was at the end of 2006.

The deficit picture is expected to improve next year, with the 2015 deficit at $378 billion, just 2.1 percent of the economy.

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