The federal budget is already shrinking, and yet no one seems to be talking about it. This week congressional leaders are attempting to negotiate a budget compromise that would cut approximately $30 billion from the federal deficit. However, without doing anything the federal deficit has already decreased by nearly that amount. The “magic” behind the decreasing deficit can be largely be explained by economic growth.
The largest deficit in history came in 2009, when the federal government accumulated a debt of $1.416 trillion. In 2010 the federal deficit was $1.294 trillion, a decrease of $122 billion that no one seems to want to talk about. The fiscal year of 2011 looks even better according to Treasury Department reports on the revenue and outlays of the federal government. Thus far the amount of money the federal government has taken in has been $68 billion, 8.5 percent, higher than they were for the fiscal year 2010. Meanwhile, total spending has grown by less than 1%.
The growth in revenue can largely be attributed to increased income tax receipts. Congress did not approve any tax hikes over the last year, in fact the Congress moved to cut many taxes. Instead, the increased revenue from income taxes comes from increased incomes for individuals. As Americans make more money they naturally pay more taxes.
The slow rate of spending growth can also be traced back to economic growth, but also to statutory limits on federal aid for individuals. As people find jobs they stop receiving jobless aid and may also stop taking federal aid through programs like food stamps. Others have taken out the limit of benefits they are entitled to take out. For instance, millions of Americans are no longer receiving jobless aid after hitting the 99 week limit for such benefits. Federal outlays for unemployment benefits have actually decreased by $14 billion, 20 percent, in the fiscal year 2011.
This is not to say that the federal deficit is still not a problem, or that deficits will not be a problem in the future. However, it is useful to keep some perspective on the current direction the country is headed when it comes to deficits. Economic growth is by far the best way to attack deficits, as it helps increase government revenue while also decreasing government expenditures for social safety net programs. Deficits are going down, not up, and keeping the economy growing is likely to be the best cure for deficits of the future.
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