Balanced Budget by 2016?

The Lehmann Letter (SM)

Could the federal budget deficit disappear by 2016? Yes it could according to statistics released this morning.

Today’s big news from the Commerce Department is a 2.5% second-quarter increase in GDP:

But the report included good news on the deficit:

(Click on Section Three and then Table 3.2., lines 36, 39 & 45)

The second-quarter deficit shrank to $656.4 billion without including capital items, and shrank to $723.9 billion with the inclusion of capital items. Those figures are half of what they were two years ago and far smaller than the deficit was at its $1.5 trillion peak five years ago.

Federal Receipts, Expenditures & Deficit

7.1 Federal Deficit 06-26-13

Recessions Shaded

What happened? You can see that federal expenditures stopped growing while the recovering economy generated increasing tax revenues. At this rate of improvement the deficit might disappear in three years.

That is not a forecast because there are too many “ifs.” Expenditures must remain flat and revenues continue to grow for the deficit to vanish. That seems like too much to ask, but it is what is happening now.

We’ll see.

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© 2013 Michael B. Lehmann