Are Your Higher Taxes Helping Decrease the Deficit?

Treasury

While the rate of improvement in the federal deficit is strong, it did slow in May with a higher-than-expected monthly deficit of $138.7 billion. As the United States Department of the Treasury reported Wednesday, that jump represented a 10 percent increase when compared to the figure reported in May of last year.

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Still, the budget deficit is on track to post its smallest budget deficit in five years because higher taxes — including the payroll tax increase implemented in January — and the modestly improving economy have provided additional revenue. The total budget deficit for the first eight months of the fiscal year, which began on October 1, amounted to $626.33 billion, a decrease of approximately 26 percent from the same period a year earlier. Provided current policies remain in effect, calculations conducted by the Congressional Budget Office show that the deficit will likely fall to $642 billion for the current fiscal year and drop as low as $378 billion by 2015. Regardless, this will be the first time that the federal government’s yearly deficit will drop below $1 trillion since 2008, when spending outpaced revenue by $458.55 billion.

The nation’s slowly improving finances is one reason that Standard & Poor’s lifted its U.S.’s AA+ credit-rating outlook to “stable” from “negative” on Monday. But “the fiscal picture has a very long way to go before it is on a sustainable path,” Thomas Simons, a government-debt economist, told Bloomberg.

It is not because the government is spending less that the fiscal outlook for the United States has strengthened; outlays have totaled $2.427 trillion so far this year, compared with $2.408 trillion recorded a year earlier. Rather, revenue has increased. Receipts have grew 15 percent to $1.801 trillion since October, largely due to higher payroll taxes, higher tax rates for those earning more than $450,000, and stronger incomes, which, in turn, have buoyed tax revenue. In May alone, revenue rose 9.1 percent from the same month a year earlier.

There is one concerning aspect to Wednesday’s report; now, the White House and congressional lawmakers face less pressure to address long-term problems, such as unsustainable spending on Social Security.

The Congressional Budget Office said last week that spending in May would have been $4 billion less than last year except the timing of some payments were shifted.

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