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From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.
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And I'm Melissa Block. Congressional forecasters said today the federal deficit will be smaller this year than they previously expected, but they warn slow growth will produce bigger deficits later in the decade. Forecasters also looked at how the Affordable Care Act is likely to affect the job market, and we'll have more on that in a moment.
CORNISH: All this week, we're examining the dramatic turnaround in the government's bottom line. This is the fastest drop in the deficit since the demobilization after World War II. Here's NPR's Scott Horsley with more on today's news and a look at whether the economy would be in better shape if the government hadn't pushed so hard to shrink the deficit.
SCOTT HORSLEY, BYLINE: The tide of red ink that's been floating Washington in recent years is going out fast. Maybe too fast. Five years ago, during the depths of the recession, the government was spending $1.4 trillion more than it took in, a deficit equal to 10 percent of the whole U.S. economy. Last year, that figure was down to 4 percent, and by next year the deficit is expected to shrink to just over 2.5 percent of GDP.
President Obama boasted about the improvement in a White House news conference six week ago.
PRESIDENT BARACK OBAMA: Our fiscal situation is firmer, with deficits that are now less than half of what they were when I took office.
HORSLEY: But in slamming the breaks on deficit spending, the government also slowed the economic recovery.
MARK ZANDI: It was a big weight on the economy.
HORSLEY: Mark Zandi of Moody's Analytics says while the private sector has added more than eight million jobs since bottoming out, even more people would be working today if the federal government hadn't been so intent on narrowing the deficit.
ZANDI: If there wasn't fiscal austerity, then, you know, job growth would've been a million and a half, two million higher. We'd have created a boatload of jobs.
HORSLEY: The intense focus on deficit reduction began three years ago after Republicans took control of the House. The Obama administration's temporary stimulus program had already mostly expired. But Congress decided to cut spending further. And last year lawmakers added a tax hike as well. All of that contributed to the sharp drop in the deficit, but Christian Weller of the left-leaning Center For American Progress says even if it was the right prescription at some point, it was the wrong time to administer it.
CHRISTIAN WELLER: Policymakers did exactly the opposite of what economists would advocate. That is, you don't want to raise taxes. You don't want to cut spending in the middle of a weak recovery.
HORSLEY: Weller says the government cutbacks kept the recovery weaker than it otherwise would have been, with unemployment now expected to remain above 6 percent through the end of 2016. The government's drag on the economy is easing up now, though, and Zandi says as tough as it's been to swallow, the bitter fiscal medicine worked.
ZANDI: If you'd have asked me that question a year or two ago, I'd say we were biting off too much here, that we were trying too much fiscal austerity too fast, that the economic recovery was too fragile, couldn't handle it. But we accomplished it. The economy is still standing. The recovery is gaining traction and we've got a smaller deficit to boot.
It's not what I would've done, but we fortunately got through it.
HORSLEY: Dire predictions that a big deficit would lead to a spike in interest rates have not come true. But conservatives still applaud the improvement in the government's bottom line. Douglas Holtz-Eakin of the American Action Forum says it was important to get government borrowing under control so businesses that want to borrow can do so at attractive rates.
DOUGLAS HOLTZ-EAKIN: The good news is, the progress we've seen is real, comes from a better economy, comes from tighter spending controls. The bad news is it won't last.
HORSLEY: Today's budget forecast says the deficit is likely to start widening again around 2016 thanks to increased demand for healthcare and Social Security as more baby boomers retire. Thus far, policymakers have done little to tackle those long term costs and there's no sign they'll do so any time soon. If anything, the urgency to make the tough choices about taxes and spending has evaporated now that the short term recession driven deficit has been reigned in.
Scott Horsley, NPR News, Washington. Transcript provided by NPR, Copyright NPR.