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CBO Slashes 2013 Deficit Projection to $642 Billion

Saul Loeb | AFP | Getty Images

The budget deficit for the current year is projected to come in well below what was estimated just a few months ago, according to a government study released Tuesday.

The Congressional Budget Office cites higher tax revenues and better-than-expected bailout repayments by mortgage giants Fannie Mae and Freddie Mac as the key reasons for the improved outlook. The budget office now predicts a 2013 budget deficit of $642 billion, more than $200 billion below its February estimate. This year's shortfall would register at 4.0 percent of the economy, far less than the 10.1 percent experienced in 2009 when the government ran a record $1.4 trillion deficit.

Last year's deficit was $1.1 trillion, capping four consecutive trillion dollar-plus deficits during President Barack Obama's first term.

(Read More: Obama: IRS Focus on Conservative Groups 'Outrageous')

The deficit picture is expected to continue to improve next year and beyond, with the 2015 deficit now projected at $378 billion, just 2.1 percent of the economy. All told, the budget office predicts deficits over the coming decade of $6.3 trillion, down $522 billion from earlier projections.

The CBO report comes as Washington has again hit budget gridlock after enacting a $600 billion-plus tax increase on upper-bracket earners in January. The report could sap momentum from further deficit-cutting efforts.

(Read More: IRS Takes a Closer Look at the Wealthy)

One of the reasons for the burst of additional income tax revenues, the budget office says, is that upper-income taxpayers claimed more income late last year in order to avoid paying the higher tax rates enacted in January.

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