July 26, 2014

Uh Oh, Treasury Reports a Small Deficit

You might look at the title of this post and ask, "Why is The Concord Coalition upset about a small deficit -- shouldn't that be a good thing?"

Most of the time, the answer would be "yes," but when a deficit, even a small one, is reported for the month of April, that is unusually bad news.

The federal government typically sees a surge in revenue during the month of April because of the large amount of tax payments filed close to the April 15th deadline. Yet, in the Treasury Department's April monthly statement the federal government posted a $20.9 billion deficit -- the first April deficit since 1983.

This reflects abnormally high spending, and unusually low revenues. Spending was 17.5% higher than last April and tax receipts were 34% lower. Even more shocking is that individual income tax collections are down 24% for the fiscal year and corporate income tax receipts have dropped from $171 billion last year to $71 billion this year -- a 59% decrease!

All of that is happening against the backdrop of huge increases in government spending primarily due to the stimulus bill, TARP, and automatic counter-cyclical spending such as unemployment compensation. 

The month of April brings the federal deficit to $802 billion for the first seven months of the fiscal year, already close to twice last year's largest-in-history deficit, and more than five times the $153 billion deficit for the first seven months of last year. As a percent of the economy (GDP), this year is projected to be the worst since the end of WWII when, in 1945, the deficit reached 21.5% of GDP as projections are for the deficit to reach 12.9% of GDP. 

--Josh Gordon