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Federal budget deficit shrinking faster than expected — perhaps too fast

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Your typical rank-and-file Republican probably knows nothing about THIS:

Since the recession ended four years ago, the federal budget deficit has topped $1 trillion every year. But now the government’s annual deficit is shrinking far faster than anyone in Washington expected, and perhaps even faster than many economists think is advisable for the health of the economy.

That is the thrust of a new report released Tuesday by the nonpartisan Congressional Budget Office, estimating that the deficit for this fiscal year, which ends on Sept. 30, will fall to about $642 billion, or 4 percent of the nation’s annual economic output, about $200 billion lower than the agency estimated just three months ago.

The agency forecast that the deficit, which topped 10 percent of gross domestic product in 2009, could shrink to as little as 2.1 percent of gross domestic product by 2015 — a level that most analysts say would be easily sustainable over the long run — before beginning to climb gradually through the rest of the decade.

“Revenues have been strong as the economy has outperformed a bit,” said Joel Prakken, a founder of Macroeconomic Advisers, a forecasting firm based in St. Louis.

Over all, the figures demonstrate how the economic recovery has begun to refill the government’s coffers. At the same time, Washington, despite its political paralysis, has proved remarkably successful at slashing the deficit through a variety of tax increases and cuts in domestic and military programs.

Perhaps too successful. Given that the economy continues to perform well below its potential and that unemployment has so far failed to fall below 7.5 percent, many economists are cautioning that the deficit is coming down too fast, too soon.

UPDATE: HERE‘s Steve Benen’s take on this matter:

There are several important angles to this, but perhaps the most politically salient one is the way in which the shrinking deficit leaves Republican talking points in tatters. GOP arguments about President Obama’s fiscal recklessness now look absurd. Conservative cries about the United States becoming Greece look ridiculous. Republican demands for austerity appear pointless and unnecessarily destructive.

And yet, the drive among congressional Republicans to hold the nation hostage and create another debt-ceiling crisis remains unaffected…

The deficit is already shrinking at a pace unseen in modern generations, but for many members of the conservative Republican Study Committee, unless Democrats agree to even more deficit reduction, they’ll embrace default and crash the economy on purpose.

There’s just no reason for any of this. It’s a strategy impervious to facts.

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