The Obama administration confirmed on Wednesday that the government ended fiscal 2014 with a $483 billion budget deficit -- $197 billion less than the previous year’s shortfall and $165 billion less than forecast in President Obama’s latest budget document.
The upbeat budget news, which largely mirrors an earlier forecast this month by the Congressional Budget Office, was announced by Treasury Secretary Jack Lew and White House Budget Director Shaun Donovan. The latest deficit number is a fraction of the trillion-dollar-a-year deficits that haunted the administration in the early going of the financial crisis and recession.
It reflect a simultaneous surge in tax revenues and reductions in government spending due largely to budget cuts and overall caps on defense and domestic spending mandated by the 2011 Budget Control Act.
Related: CBO Says Budget Deficit Dipped to $486 Billion in 2014
As a percentage of the overall economy, the deficit fell to 2.8 percent of the Gross Domestic Product, the lowest level since 2007 and less than the average of the last 40 years. In dollar terms, the fiscal year 2014 deficit is the lowest since 2008.
“Under the President’s leadership, the deficit has been cut by about two-thirds as a share of the economy,” Lew and Donovan said in a joint statement. “While making investments to grow the economy and expand opportunity, the budget continues this progress, bringing deficits down as a share of the economy to about 2 percent of GDP by the end of the next decade.”
Administration officials and some Democratic lawmakers contend that the tumbling deficit for now at least justifies a shift in policy from fiscal austerity to expanded government spending to try to keep the wobbly economic recovery on track. As European and Asian government officials struggle to deal with a major downturn in the global economy, U.S. officials are wary of falling into a similar situation.
The major drop in the U.S. stock market that began last week has left investors jittery and has begun to fuel talk of another recession.
With the news Wednesday that the yield on the 10-year Treasury note had dipped below 2 percent, the argument for increased spending on delayed priorities like infrastructure improvement was made even stronger. The Federal Reserve’s target inflation rate is 2 percent, and its policymakers are now actively trying to push the current rate up to that level. Assuming that they succeed in that effort sometime in the next few years, money borrowed for 10 years today at sub-2 percent rates is basically being loaned to the government for free.
The president’s fiscal 2015 budget “provided a roadmap for making investments to accelerate economic growth, expand opportunity for all hard-working Americans, and ensure our national security, while continuing to improve the nation's long-term fiscal outlook,” according to the statement by Lew and Donovan.
Moreover, with projections that the U.S-led air strikes and related military actions against ISIS in Iraq and Syria could cost this country $40 billion to $50 billion a year, the administration and Congress are likely to bolster the defense budget in the coming months.
Related: The New U.S. Price Tag for the War Against ISIS: $40 Billion a Year
However, the non-partisan CBO and some government spending watchdog groups have cautioned that the dramatic decline in the deficit will be short-lived, and that long-term growth in Social Security and other entitlement programs will drive the deficit and cumulative national debt up again unless Congress and the White House agree on a “grand bargain” of program savings.
“Both deficits and debt are projected to rise over the next decade and beyond, with trillion-dollar deficits returning by 2025 and debt exceeding the size of the economy before 2040, and as soon as 2030,” according to an analysis of the Committee for a Responsible Federal Budget.
The significant drop in the deficit in the past fiscal year was due to a combination of higher receipts and stable outlays in FY 2014, according to the administration. Government receipts totaled slightly more than $3 trillion in the fiscal year that ended Sept. 30. That was $247 billion higher than in fiscal 2013, an increase of nine percent. As a percentage of GDP, receipts equaled 17.5 percent, 0.8 percentage points higher than in fiscal 2013.
The increase in receipts over fiscal 2013 “can be attributed to a stronger economy and the expiration of certain tax provisions,” according to the administration.
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