Some good deficit news

Date posted: June 18, 2013

It’s an understatement to say the federal deficit has been a big issue in recent years. Now, the latest forecasts show some improvement may be on the way. What’s happening? N.C. State University economist Mike Walden responds.

“The deficit is the annual amount the federal government borrows. It’s not the debt. That’s the total amount that’s been borrowed. The deficit is the annual amount. And the federal government has been borrowing over a trillion dollars a year to meet its spending. That is to say that they’ve had to borrow over a trillion dollars a year because revenues were falling short by that amount to meet what the federal government wants to spend.

Now with the improving economy, what we are seeing is that tax revenues have taken a big jump. Federal spending certainly is still going up and going up at a much slower pace. And so the expectation is that we’re now seeing those deficit projections cut from about a trillion dollars a year to about a little more than half of that, about $600 billion a year.

Now it still means the federal government is borrowing, but as a percent of the economy, they’re borrowing much less. At the peak of the recession, the federal government borrowed the equivalent of eight percent of gross domestic product, eight percent of all income generated in the economy. And now it’s going to be down to about four percent. So, it’s been cut in half.

And interestingly, some economists — and it depends on your perspective — some economists are worried about this. They’re saying, ‘hey the federal government is actually pulling back too fast.  We need this sort of deficit spending to stimulate things.’

I would think they’re in a minority, but there is still that viewpoint. So we are in a better situation regarding the deficit. We’re certainly not in a situation where the federal government is not borrowing. Many think that this may be the precursor maybe to a budget deal, which would solidify in some sense the improvements that we’ve seen in the deficit.”

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