WASHINGTON — Federal spending cuts, higher taxes for the wealthy, and a slowly recovering economy combined to reduce the budget deficit for the fiscal year that just ended to a lower-than-expected $680 billion, nearly a third lower than the Obama administration projected six months ago.
The final figure for the 2013 fiscal year, which ended Sept. 30, was a significant turnaround for the nation’s books after four straight post-recession years in which annual deficits exceeded $1 trillion each.
According to the Office of Management and Budget and the Treasury Department, which released the numbers Wednesday afternoon, the $680 billion shortfall is equivalent to 4.1 percent of the economy’s total output. That is down from a peak of 10.1 percent of the gross domestic product in 2009, months into President Obama’s first year, and at the height of the recession and financial crisis.
The deficit is $409 billion below last year’s shortfall, which was just over $1 trillion, and $293 billion less than Obama projected for 2013 when he released his budget in April.
The good fiscal news, however, is likely to further stifle any incentive in a House-Senate budget conference that began Wednesday to reach a long-term deficit reduction plan. Both parties already have agreed that a limited, short-term plan is the likeliest outcome. Yet later in this decade, the aging of baby boomers is expected to drive annual deficits up again, as more people claim health and retirement benefits.
Grand Bargain unlikely
Congressional budget negotiations opened Wednesday with a show of bipartisan conciliation but warning signs that Republicans and Democrats remained far apart on taxes and changes to entitlement programs like Social Security and Medicare.
Senators and representatives handpicked by their leadership acknowledged the stakes as they met for the first time to hammer out a tax and spending plan that would avert future fiscal crises, including another government shutdown as early as mid-January.
The two lead negotiators, Representative Paul D. Ryan, a Wisconsin Republican, and Senator Patty Murray, a Washington Democrat, both said they were ready to reach a compromise.
But those pledges came with warnings.
“I’m ready to make some tough concessions to get a deal,” said Murray, the chairwoman of the Senate Budget Committee, “but compromise runs both ways. While we scour programs to find responsible savings, Republicans are also going to have to work with us to scour the bloated tax code and close some wasteful tax loopholes and special interest subsidies, because it is unfair and unacceptable to ask seniors and families to bear this burden alone.”
Ryan, chair of the House Budget Committee, raised some Democrats’ hopes when he said that “taking more from hardworking families just isn’t the answer,” a statement Democrats interpreted as keeping open the possibility of tax changes for corporations or affluent individuals.
But Ryan made clear that he believed changes to the tax code should be determined by negotiations in the Senate and House tax-writing committees, not the budget negotiations.
“If this conference becomes an argument about taxes, we’re not going to get anywhere,” he said.
The budget negotiations stem from the deal reached this month to reopen the government after a 16-day shutdown and to raise its statutory borrowing limit.
The negotiating conference has until Dec. 13 to reach an agreement, leaving enough time for the House and Senate appropriations committees to draft spending bills that would avert another shutdown Jan. 15, when the government is again set to run out of money.
The lead negotiators have already indicated that they are not aiming for a sweeping “grand bargain” that would overhaul the entire tax code, make fundamental changes to programs like Medicare, and shave trillions of dollars from the $17 trillion national debt. Instead, they are aiming at an accord that would stave off the next round of across-the-board spending cuts, known as sequestration, while building confidence for a larger agreement in the near future.
But even that deal will not be easy.
Representative Tom Cole, an Oklahoma Republican who is one of the negotiators, did note that the government would “spend” $12 trillion on “tax expenditures” — loopholes, tax credits, and other measures — over the coming decade. “I find it hard to believe each of these expenditures are necessary,” he said.
And Senator Ron Wyden, an Oregon Republican, said he was willing to address the cost of Medicare, which is swelling with the aging population.
But those statements were the exceptions among others dominated by ideological bottom lines.
Representative James E. Clyburn of South Carolina came out firmly against cutting benefits to the recipients of government programs.
On the other side, Senator Charles E. Grassley, Republican of Iowa, spoke for most of his party when he declared the deficit a “one-sided problem” of overspending.
The negotiators and their staffs will now begin fleshing out possible areas of agreement ahead of the next formal meeting, which Ryan called for Nov. 13.