Despite the fiscal clown show that continues to roll on, the federal deficit may be shrinking.
As keening about the rising deficit rises to epic levels, efforts to put America's fiscal house in order continue to fail. Congressional Republicans aren't willing to give an inch on the need for more revenues, and the White House and Democrats in Congress (correctly) refuse to sign onto transformative deals that rely only on cutting spending and ripping up New Deal and Great Society entitlement programs. Nearly a year ago, the two parties came together to agree on measures that boost the deficit — i.e., last December's deal to extend Bush-era tax cuts for another two years and institute a payroll tax holiday. Meanwhile, every attempt to grab the deficit bull by the horns has failed, from the Erskine-Bowles Commission, to the Obama-Boehner grand bargain, to the supercommittee. Raise your hand if you think the automatic military and social spending cuts that the supercommittee failure is supposed to trigger in 2013 will actually happen.
And yet, data emanating from Washington show some small glimmer of hope. Before the long-term national debt can fall or come under control, the annual short-term deficits have to shrink. This can happen in the absence of a grand bargain, thanks to continued economic growth, which boosts tax revenues, and continual pressure on spending. On Monday, the Treasury Department released its monthly statement for November. And the data show that, for the first two months of the fiscal year, spending is down and revenue is up.
Here are some of the relevant numbers. During the first two months of fiscal 2012, which started in October, the U.S. collected some $315.5 billion, up 7 percent from the first two months of fiscal 2011. Meanwhile, spending, at $551 billion, is down 6 percent in the first two months of fiscal 2012. Combine those two, and the deficit for the first two months of this fiscal year is down 19 percent from the first two months of fiscal 2011.
Deficit hawks shouldn't break out their party hats. The government ran up a $235 billion deficit in October and November alone, and the full-year estimate stands at about $1 trillion. Tax collections in October and November 2011 are still below the level of taxes collected in October and November 2007. Plus, it's difficult to extrapolate too much from early data. The calendar, and shifts of payments and tax collections forward or backward by a week, or by a few days, can make year-on-year comparisons difficult.
Still, there's some good news in the report. Both individual and corporate income taxes are running at a higher level than last year, which tends to be a sign of a strengthening economy, not a weakening one. The increases are more than outweighing the sharp declines in the collection of payroll taxes due to the temporary tax cut. (Which suggests that tax collections could rise further even if Washington decides to extend the payroll tax cut for another year.) And the general trend of tax collections, which really fell sharply in 2008 and 2009, continues to move in the right direction. (You see can monthly data on tax receipts and government expenditures going back several years here).
The miracle cure for deficits isn't a grand bargain between parties that lack the desire or incentives to come to an agreement. The miracle cure is economic growth.
Daniel Gross is economics editor at Yahoo! Finance.