Balanced Budget In May 2009
Kurt Brouwer October 22nd, 2007
We have discussed the shrinking budget deficit before (see below) and, at one point, I had high hopes that the budget would be balanced by mid-year 2008. Unfortunately, tax revenue growth is slowing down (mainly on the corporate side) and so the date for a balanced budget has been pushed back.
This is still good news because it was only a few years ago that we had huge and growing deficits. The sad news is that many people have not even heard that the budget was quite close to being balanced. I’m not sure why this has not been a media topic, but it should be. One of my favorite bloggers, Steve Conover, has covered this issue frequently and he posted this update on the state of the deficit as of September 2007 [emphasis added]:
‘…Unfortunately, the trends are pointing towards a May 2009 balanced budget. The reason that’s unfortunate is because May 2009 is seven months too late to keep the politicians on both sides from demagoguing “the deficit” during the presidential campaign…
…Anyway, here’s the latest balanced-budget-trend chart;…’
Source: Skeptical Optimist
As you can see from Steve Conover’s chart, tax revenues are growing at 6.7%, which is faster than spending growth of 2.8%. As long as this trend continues, the deficit will fall and eventually will move into balance. The obvious question is what happens if tax revenues stop growing as fast as they are growing or if spending grows faster? Those questions, of course, are primarily political questions rather than economic ones because Congress has in its power that ability to cut spending in order to balance the budget. And there are many things Congress could do to spur economic growth. Conover continues:
‘…Two of the biggest contributors to tax receipts are individual income taxes and corporate income taxes, shown below. The slowdown in corporate taxes is not encouraging; a pickup in the economy’s performance would help move the overall trend in the correct direction…’
Source: Skeptical Optimist
It is not surprising that corporate taxes have slowed from their torrid growth rate of a couple of years ago. As the economy slowed over the past year or so, it is natural that corporate tax revenues have gone down too. It will be interesting to see whether the recent pickup in economic activity results in a rise in corporate taxes.
I suspect that many people thought our federal budget deficit was an intractable problem a few years ago. However, a few years of strong economic growth have changed the picture dramatically. Now, at 1.2% of GDP, the deficit is about half of the 40-year average (approximately 2.2%). Quietly, yet inexorably, the deficit is becoming a non-issue. Steve Conover laments the fact that it won’t be balanced by the the summertime 2008 electioneering, but that was probably asking for too much. The trend is moving in the correct direction and that is always a cause for celebration.
As we enter the high intensity presidential campaign, I hope the parties, the candidates and the media take the high ground and note our success on this issue. And, wouldn’t it be nice if they came up with proposals to enhance our economic growth and even to curb excessive spending? Though this in unlikely in this rather poisonous political climate, there is always room for hope.
Here are three additional posts we have done recently on the related topics of the budget deficit, income taxes and Federal government debt:
Budget Deficit Down Considerably From Last Year
1% of Taxpayers Pay Nearly 40% of Taxes
Federal Government Debt Thermometer
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