Tuesday, April 13, 2010

Turning the corner on the deficit?

A return to economic growth and possibly to employment growth is causing the deficit to improve sooner than government officials had thought. The Washington Post reports
The federal deficit is running significantly lower than it did last year, with the budget gap for the first half of fiscal 2010 down 8 percent over the same period a year ago, senior Obama administration officials said Monday.

The officials attributed the results to higher tax revenue and to lower spending than projected on bailing out the financial system. If the trend continues for the rest of the year, it would mean the annual deficit would be $1.3 trillion -- about $300 billion less than the administration's projection two months ago for 2010.
Even with the improvements, the projected deficit remains jawdroppingly large and only slightly below last year's figure. Also, the better figures only apply to a few months. The trends would need to continue for the FY 2010 deficit to actually fall.

In addition, the improvements don't much affect the long-term picture, which shows deficits starting to climb again after 2014 when shortfalls in Medicare and Social Security begin to add significant pressure to the budget.

Still, the improvements are, well, improvements. They give the government some breathing space as it moves from a strongly stimulative fiscal position to a more neutral position.