Archive for the tag 'debt'

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:

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