Growth is the miracle deficit cure. When the economy expands, more people work — and they work more hours at higher wages. That leads to more tax revenues. At the same time, when more people work, fewer people tend to need unemployment benefits, which helps lead to lower spending. That dynamic, combined with efforts in Washington to hold down spending, is helping to shrink the annual budget deficit.
Today, Treasury released its latest monthly statement, which details revenues and spending for January, and for the first four months of the current fiscal year. It can be seen here. In January 2012, revenues were $234 billion, up 3.5 percent from $226 billion in January 2011. Meanwhile, federal spending was $261.7 billion in January 2012, down 5.3 percent from $276 billion in January 2011. The deficit for the month was $27.4 billion, down from nearly $50 billion in January 2011 — a decrease of 45 percent.
For the first four months of fiscal 2012, revenues are up 4.2 percent compared with the first four months of fiscal 2011, while spending is off 3.3 percent. The upshot: For the first four months of fiscal 2012, the deficit is $349 billion, down 16.3 percent from the first four months of 2011.
That's the good news. The bad news? If this pace continues for the rest of the year, the deficit will still come in at nearly $1.1 trillion.
Daniel Gross is economics editor at Yahoo! Finance.
Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com.
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