13 June 2007

Where's A Cocktail Napkin When You Need One

OJ points us to an AP article on the plummeting federal deficit. I was particularly struck by this passage:
For the year, revenue and spending are both at record levels. Revenue gains are up 8 percent while outlays are up at a slower pace of 2.5 percent, compared to the same period a year ago. Growth in spending has been slower this year in part because of the absence of last year's huge outlays for hurricane relief.

The increase in revenues has been supported by continued strength in corporate profits and low unemployment, which has helped to push individual income taxes higher.

For the 2007 budget year, which ends on Sept. 30, the Congressional Budget Office is projecting a federal deficit of $177 billion. That would be down 28.7 percent from last year's imbalance of $248.2 billion, which had been the lowest deficit in four years.

The federal budget was in surplus for four years from 1998 through 2001 as the long economic expansion helped push revenues higher.
What's weird about this? It completely ignores why the federal government spends money. With strong corporate profits, low unemployment and (although the article doesn't mention this) incomes increasing, not only is there more tax revenue, but there's less need for government handouts. This "float the boats" effect, and welfare reform, are a big reason that the budget has been decreasing, and the deficit has been plummeting, as a percentage of GDP. Now we just need to straighten out social security, and we'll be all set.


Bret said...

What percent of the federal budget is related to government handouts due to economic conditions (i.e. recession)? I thought that it was pretty miniscule at the federal level.

The deficit is now too small in my opinion and heading rapidly toward way too small. Deficits provide part of the liquidity required to keep the economy rolling near maximum potential.

Oroborous said...

Don't worry, Bret, spending on old-age pensions and healthcare will soon provide us with immense deficits as far as the eye can see.

Bret said...

Thanks heavens!

But that won't happen in the near term.

David said...

Just for one example, the federal medicaid spending is larger than the deficit, and has proved itself to be surprisingly responsive to good economic times.