Archive for the tag 'government spending'

Budget Deficit Down Considerably From Last Year

Kurt Brouwer October 6th, 2007

The Congressional Budget Office gave us good news on the budget deficit. It will come in pretty much as expected at 1.2% of GDP or $161 billion. John Godfrey at Real Time Economics Blog reports:

‘…The Congressional Budget Office estimated Friday that the U.S. federal budget deficit for fiscal year 2007, which ended Sunday, was about $161 billion, or 1.2% of gross domestic product. That’s down from the $248 billion shortfall recorded in fiscal 2006, which translated into 1.9% of GDP. The Treasury Department will report the official tally later this month.

Much of the improvement in the nation’s fiscal outlook in the last year has come from continued rapid growth in federal revenue. CBO estimates that [at]18.8% of GDP in fiscal 2007, up from 18.4% 2006 and 16.3% in 2004 and 18.4% in 2000. Outlays came to an estimated 20% of GDP, about equal to the average over the previous five years.

While annual federal spending grew 2.8% in fiscal 2007 over fiscal 2006, year to year, revenue grew 6.7%. Individual income-tax receipts are estimated to be 11.3% higher than last year, and corporate income tax receipts are estimated to be 5% higher. Revenue growth has cooled substantially from the 11.8% fiscal year-to-year increase from 2005 to 2006. Spending growth also slowed…’

The 40-year average budget deficit is over 2% of GDP, so this is good news because the current deficit is about half the long-term average. The key to the decline has not really been spending discipline although spending has not grown much faster than inflation. The real key has been revenue growth.

As the economy has grown, it is not surprising that tax revenues have grown too. And, it certainly does not hurt that capital gains rates are low because that encourage investors to liquidate low basis investments when the time is right from an investment perspective. In fact, I would not be surprised if some investors feel the time is right to take profits because tax rates for long-term capital gains may well go up.