Tax Revenue Soars, Decreasing Deficit, U.S. says

Tax Revenue Soars, Decreasing Deficit, U.S. says

By NELSON D. SCHWARTZAPRIL 10, 2014

The economy may be plodding along. But business is booming for Uncle Sam.

The Treasury Department said Thursday that the federal budget deficit for the first half of the 2014 fiscal year totaled $413 billion, down $187 billion from where it stood at this point last year, as tax revenue surged and spending sank.

In March, the Treasury collected $216 billion in taxes, up 16 percent from a year ago, helping reduce the deficit for March to $37 billion from $107 billion last year. Meanwhile, spending sank by 14 percent, or $40 billion.

The budget gap last month was the smallest deficit recorded for the month of March since 2000, when economic growth was running at a much faster pace than it is today.

The red ink had been expected to ease this year. But Thursdayâ??s announcement underscored just how quickly tax receipts have been increasing amid slightly faster economic growth and a surging stock market.

Indeed, while some of the increase was due to tax increases that took effect at the beginning of 2013, veteran budget experts said it also reflected just who was benefiting the most in the current recovery.

â??Itâ??s higher-income people and it is mainly from the stock market; itâ??s not mainly wages,â?? said Alice Rivlin, a senior fellow at the Brookings Institution and director of the Office of Management and Budget in the Clinton administration. â??The economy is doing a little better, but not a lot better, while the stock market has been a remarkable phenomenon. Higher capital gains taxes feed in pretty quickly.â??

In addition to the boom in tax revenue, the federal governmentâ??s books are also being helped by lower military spending, a drop in outlays for benefits like unemployment insurance, and payments into the Treasury from Fannie Mae and Freddie Mac, the mortgage giants that were taken over by Washington in 2008.

Over all, the deficit is expected to equal 4.1 percent of gross domestic product in 2014, down from nearly 10 percent in 2009, during the depths of the recession.

The deficits in the next few years are expected to stay at 2 to 3 percent of gross domestic product, before widening sharply again toward the end of the decade. That deterioration in finances will be driven by the higher cost of retirement benefits and health coverage for aging baby boomers, although government spending on Medicare and Medicaid has shown signs of stabilizing recently.

While a narrower budget gap is good news in many ways, many economists are concerned that policy makers focused too much on spending cuts and austerity in the short term even as the economy remained weak in the recessionâ??s wake.

In particular, they worry that the reductions in discretionary spending by Washington in recent years, as well as the expiration of unemployment benefits for the long-term unemployed at the end of 2013, will ultimately be counterproductive in terms of growth.

â??Iâ??m still ambivalent about the drop in deficits over all,â?? said Ernie Tedeschi, head of fiscal analysis at ISI, a private research firm.

â??It is the fastest four-year reduction in deficits since the demobilization after World War II,â?? he added, â??but it has come in the middle of an economy that is not yet healed from the worst recession since the Great Depression.â??

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