On July 9, the Congressional Budget Office (CBO) released its official estimate of the federal deficit so far in Fiscal Year 2013. The good news? June ran a surplus, and the federal deficit is smaller than it’s been in half-a-decade. The bad news? The deficit is already at $512 billion, with three months of the fiscal year left.

CBO expects 2013 to see a $642 billion deficit, to the applause of some. But any smaller deficits in the near future ignore differences between the CBO’s “current law” and “current policy” projections.

The current law projections -which look strictly at what’s on the books – CBO expects the following in the next decade:

Because revenues, under current law, are projected to rise more rapidly than spending in the next two years, deficits in CBO’s baseline projections continue to shrink, falling to 2.1 percent of GDP by 2015 (see Table 1 on page 8). However, budget shortfalls are projected to increase later in the coming decade, reaching 3.5 percent of GDP in 2023, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt. By comparison, the deficit averaged 3.1 percent of GDP over the past 40 years and 2.4 percent in the 40 years before fiscal year 2008, when the most recent recession began. During the next 10 years, both revenues and outlays are projected to be above their 40-year averages as a percentage of GDP (see Figure 1 on page 9).

For the 2014–2023 period, deficits in CBO’s baseline projections total $6.3 trillion. With such deficits, federal debt held by the public is projected to remain above 70 percent of GDP—far higher than the 39 percent average seen over the past four decades. (As recently as the end of 2007, federal debt equaled 36 percent of GDP.) Under current law, the debt is projected to decline from about 76 percent of GDP in 2014 to slightly below 71 percent in 2018 but then to start rising again; by 2023, if current laws remain in place, debt will equal 74 percent of GDP and continue to be on an upward path (see Figure 2 on page 9).

In other words, the tax increases earlier this year are going to be modestly helpful in the immediate future to bring deficits down. Then spending, which has shrunk a little this year in comparison to last, will skyrocket and America will still have a fiscal crisis on its hands.

Sadly, the above projections are the optimistic expectations. Current policy projections, which look at political reality of various policies, are far less kind.

In the other direction, if the automatic spending reductions in place through 2021 were reversed, in whole or in part, projected outlays would be higher than the amounts shown in the baseline. Similarly, if the Congress and the President decided to extend tax provisions that are scheduled to expire over the next decade without making offsetting changes in other tax policies, revenues would be lower than those in the baseline. The expiring tax provisions include one that allows an immediate deduction for businesses of 50 percent of the cost of new investments in equipment and also include certain aspects of refundable tax credits.

In recent years, CBO has presented an alternative fiscal scenario that illustrated the impact on projected deficits and debt of maintaining policies that were then in place but that were scheduled to change under then-current law. Many components of the alternative fiscal scenario (including many with the largest budgetary effects) have now been made permanent. The remaining components consist of holding constant Medicare’s payment rates for physicians’ services (now scheduled to be reduced in January 2014), undoing the automatic spending reductions scheduled for 2014 through 2021, and extending certain expiring tax provisions. If lawmakers were to make those changes to current law, and if other changes in policies with offsetting effects on budget deficits were not enacted, deficits and debt would be higher than the amounts shown in CBO’s current baseline. Relative to the baseline projections for 2014 to 2023, deficits would rise by a total of $2.4 trillion (including debt-service costs) to yield cumulative deficits of $8.8 trillion. Debt held by the public would reach 83 percent of GDP by the end of 2023, the largest share since 1948.

In other words, CBO expects $2.4 trillion more publicly held debt than seen in the current law projections. Interest payments, Social Security, and Medicare will only add to the problem as they continue their inexorable spiral to failure in 2013.