May 21, 2013

Lower Deficits

America’s budget deficit is ballooning out of control, right?

Analysts are discovering something surprising: the U.S. government budget deficit this year and next appears to be shrinking.  Goldman Sachs has issued a report which lowered fiscal 2013’s estimated red ink from $900 billion to $775 billion, or about 4.8% of total U.S. economic output.

How did this happen?  Spending is down as a result of the sequestration ($85 billion this year) and prior spending cuts, plus tax revenues are up 12% over last year, the report tells us.  It says that the deficit may come in even smaller than currently anticipated, due to the higher payroll taxes that are only now starting to be counted on the government’s balance sheet.  If the economy grows faster than expected, that, too, could bring in higher-than-anticipated revenues.  Goldman now projects the budget deficit to fall to just 2.7% of economic output by the 2015 fiscal year, which many economists believe is a sustainable level.

Although we need to keep spending in check, we believe economic growth will ultimately cure the woes of our weak recovery in unemployment. Seeking a balance of reducing the deficit while still promoting economic growth will be the difficult task for policymakers for the years to come.