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A Congressional Budget Office report says the federal deficit has shrunk, but the federal debt is still a problem. The GOP wants to target that and the healthcare law.

By Lisa Mascaro
September 17, 2013, 9:53 p.m.

WASHINGTON — The federal deficit has shrunk to its lowest level since 2008, according to a report released Tuesday, but House Republicans will begin the next budget battle this week with a vote that threatens to shut down the federal government unless President Obama agrees to halt his healthcare law.

The deficit has dropped from its peak at the start of the Great Recession and is on track to decline even more thanks to an improving economy, higher taxes on the wealthy and reduced federal spending, the report from the nonpartisan Congressional Budget Office concluded.

But the long-term outlook remains bleak. The nation’s publicly held debt — the accumulation of annual deficits — keeps piling up. It’s expected to equal the economy’s annual output, or gross domestic product, by 2038.

“The unsustainable nature of the federal government’s current tax and spending policies presents lawmakers and the public with difficult choices,” the report says. “To put the federal budget on a sustainable path for the long term, lawmakers would have to make significant changes to tax and spending policies.”

The short-term improvements have not tempered the GOP’s appetite for more brinkmanship in its drive to cut spending and push its policy priorities. After having extracted steep budget reductions, some hard-core Republican deficit hawks now want to repeal, or delay, the president’s healthcare law.

House Republican leaders see almost no option but to yield to those demands, even though such a measure is all but certain to be rejected by the president and the Senate, where Democrats hold the majority.

But some Republicans see the threat of an Oct. 1 government shutdown — and a default a few weeks later if the nation’s debt limit is not increased — as their best leverage to force Democrats to cut a deal.

The Republican-led House could vote this week to halt spending for the president’s Affordable Care Act as part of legislation needed to keep the government open after Sept. 30, when the current funding runs out. House leaders also are considering a one-year delay of the health law in exchange for raising the debt limit.

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