The federal budget deficit is lower than it’s been since 2008 and shrinking at its fastest pace since, well, a very long time. Certainly faster than at any period since the end of World War II.
The Department of the Treasury this week reported a $680 billion shortfall for the fiscal year ended Sept. 30. That compares with a $1.08 trillion deficit for 2012.
While spending is falling, a combination of the payroll tax hike and steady if not spectacular economic growth has boosted the amount of money coming into the government to a record high. Bloomberg reports that after a 15.2 percent jump in September’s receipts from a year earlier, the government’s annual revenue hit $2.77 trillion.
Despite the sequester, which was enacted only halfway through the fiscal year in March, spending in September increased 21.5 percent from a year earlier, to $226.4 billion. That leaves total 2013 spending at $3.45 trillion.
The chart below shows the federal budget as a percentage of gross domestic product. The incline on the far right is steeper than anything we’ve seen going back to 1973.
The problem is that three years from now, just on the other side of that far-right incline, is an equally steep drop-off. Continued higher revenue is expected to shrink the deficit to about 2.1 percent of GDP through 2015. But the Congressional Budget Office projects it to start rising again in 2016 as entitlement spending ramps up on aging baby boomers. Rising interest rates are also expected to eat up more government funds to pay down its debt.
A lot of people might read this headline as evidence for more spending cuts. That’s true down the road, as something needs to be done about Medicare, Medicaid, and Social Security. But as Joshua Green has pointed out, Democrats seem to be coming around to the idea of cutting entitlements in exchange for some short-term spending right now as part of a long-term budget deal.
A shot of stimulus would actually buy lawmakers some time to get entitlements under control by boosting the economy. In turn, that would increase government revenue and help delay the deficit explosion that’s set to come in the next decade.