US Deficit Shrinking Faster Than Expected: CBO

The U.S. budget deficit will fall to $642 billion this year from $1.1 trillion in 2012 as higher tax revenues and spending cuts take effect, said the nonpartisan Congressional Budget Office on Tuesday.

With no further congressional action, the CBO added that the deficit will fall to $378 billion by 2015, a sharp contrast to the $1 trillion budget deficits in each of President Barack Obama’s first four years in office.

The U.S. budget deficit will fall to $642 billion this year from $1.1 trillion in 2012 as higher tax revenues and spending cuts take effect, said the nonpartisan Congressional Budget Office on Tuesday.

With no further congressional action, the CBO added that the deficit will fall to $378 billion by 2015, a sharp contrast to the $1 trillion budget deficits in each of President Barack Obama’s first four years in office.

The deficit improvements are largely due to increased tax revenues worth $105 billion, as the economy continued to recover. The housing market rebound also allowed Fannie Mae and Freddie Mac, put under government control in 2008 as they neared collapse, to make $95 billion in payments to the U.S. Treasury.

Automatic spending cuts which began on March 1 were already factored into the CBO’s calculation, also helped drive the declining deficits.

Related: Sequester Puts US Growth at Risk: IMF

The brighter U.S. fiscal outlook comes as other advanced economies are struggling to reduce their deficits through drastic spending cuts and tax rises at a time of weak or negative growth. Growth figures to be released on Wednesday are expected to show that the 17-country eurozone contracted again.

Earlier this year, a bipartisan effort was under way to lock in more deficit cuts, particularly later in the decade when spending picks up as a share of the economy and revenue levels off.

According to the report, said Medicare and Social Security would begin to consume an even larger share of the budget from 2016. By 2023, Social Security and government health-care spending is expected to hit $3 trillion, or half the budget.

Related: US Health Care System Wastes $750 Billion Annually: Report

But the deficit debate has already faded in Washington’s consciousness in recent weeks amid brighter economic reports and rising government receipts. An anticipated summer fiscal showdown between Democrats and Republicans over raising the debt limit continues to slip, and the CBO said in the report that the Treasury now may be able to go without an increase until November.

“You don’t want to use the progress we are making as an excuse not to fix the problem, and there’s a very real risk that will happen,” says Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, which has been campaigning for a big deficit grand bargain.

While the deficit is shrinking, the CBO said the federal debt – all the borrowing accumulated by the government over the years – is expected to dip slightly and then begin climbing in 2019, remaining above 70 percent of GDP. Over the past 40 years, debt as a share of GDP has averaged 39 percent.

“Such high and rising debt later in the coming decade would have serious negative consequences,” the CBO said.

Related: US Debt To Be Twice The Size Of GDP By 2037