U S Chamber of Commerce : The Administration Spins the Budget Deficit

The federal government ran a budget deficit of $439 billion in 2015, and that's supposed to be good news according to the president and his cheerleaders. In his recent State of the Union address, President Barack Obama said the deficit had been cut by 'almost three-quarters' (the actual figure is 69 percent, but let's not quibble).

Well, getting the deficit below a half trillion dollars is good news compared with past performances under this administration. In 2014, the deficit hit $485 billion. For the first four years of his administration the budget deficit exceeded a trillion dollars, so the federal debt has increased by a whopping $6.9 trillion to date under the president's watch.

This is classic Washington spin. Behave less badly and call it good progress.

So the good news is really that bad news is less bad, but for how long? Unfortunately, not for very long at all. Under current policies the budget deficit is projected to soar back up to $1 trillion annually in just a few years. And that's assuming no recession in the intervening period, an assumption even the most Pollyanna economist would refuse to make.

One might respond as the president suggested, that the picture is not really so gloomy. One might argue these soaring near-term deficits are driven by the coming surge in entitlement spending, so if the next president pushes through entitlement reform after the past eight years of inaction then these trillion dollar budget deficits won't reappear. Unfortunately, that's not quite right, either.

Without question, Social Security and Medicare are projected to become insolvent sometime just outside the ten-year budget window. There's no question they along with Medicaid have to be reformed to bring costs under control. Reforming these programs is inevitable, and necessary to the economic security of America's less fortunate, for today's workers and tomorrow's seniors.

But fixing the entitlement programs, while vitally important, won't stop the rise in the budget deficit. The projected near-term rise in the budget deficit is due overwhelmingly to the combined effects of massive government debt already accumulated and projected for the next few years, and widespread expectations for increasing interest rates. In other words, the return to trillion dollar budget deficits is already baked in the pie.

Just look at the figures. According to the Congressional Budget Office's mid-summer budget update, between 2015 and 2025 the federal government's net interest expense is projected to increase by about $540 billion. The total budget deficit is projected to increase over this period by about $570 billion.

The modest improvement in the federal budget deficit from 2014 to 2015 is good news, but given where we've been, and where we are now heading under current policies, no one should be celebrating.