The U.S. deficit will fall to $514 billion in the 2014 fiscal year. That's about 3 percent of the overall economy, where it's been for the much of the past 40 years, the Congressional Budget Office said Tuesday in its new 10-year budget outlook.
The deficit in fiscal 2009 was $1.4 trillion, so the latest estimate by the non-partisan CBO underscores the sharp pullback in government spending in recent years and an improving economy that's drawing in more tax revenue.
But it's not all cheer in the CBO report. The deficit is projected to fall again next year, and then begin rising as projected spending exceeds government growth. The rise in spending will be on social welfare programs such as Social Security and Medicare, which will strain federal budgets as more and more of the 78 million baby boomers born between 1946 and 1964 enter retirement.
And the CBO offered a troubling wake-up call. While the deficit outlook has improved, the amount of debt held by the U.S. government has not. Federal debt held by the public is projected to equal 74 percent of the overall economy by Sept. 30, the end the fiscal year. It's expected equal 79 percent of the overall economy by 2024, the end of the 10-year outlook, the CBO said.
The amount of federal debt held by the public relative to the size of the economy "is now very high by historical standards," the CBO warned.
In its economic projections, the CBO expects the unemployment rate to remain above 6 percent until late 2016, despite its projections for annual economic growth in the ballpark of 3 percent for the next several years. The economy "will continue to have considerable unused labor and capital resources (or 'slack') for the next few years," the CBO's report said.