What Deficit?

I hate to say I told you so, but I told you so. The golden age of deficit reduction has arrived. But will Republicans ever admit the truth? Unlikely. By Daniel Gross.

It may not seem like it, but the Golden Age of Deficit Reduction we’ve been writing about is truly upon us.

The May monthly treasury statement came out on Wednesday. And while it shows a hefty $139 billion deficit for the month of May, a look inside the data shows why we are entering a brief age of deficit-reduction nirvana.

Many analysts believed the huge revenue gains seen in the first few months of 2013 would wilt away as winter turned into spring. Higher taxes and a gusher of dividends and other income in 2012 helped create huge tax liabilities that people had to pay in the early months of 2013. Yet in May, revenues again rose sharply from May 2012. They came in at $197.2 billion, compared with $180.7 billion in May 2012, or up 9.1 percent. Through the year thus far, revenues are up 15 percent from the year before.

The spending side was a little different. In general, the trend so far this year has been for spending to be down a bit, thanks to the sequester, and less spending on defense and unemployment benefits. But there was a wrinkle in May. As Treasury noted, “since June 1, 2013, the normal date for these expenditures fell on a non-business day, outlays for military active duty and retirement, Veterans’ benefits, Supplemental Security Income and Medicare payments to Health Maintenance Organizations moved to May 31, 2013.” As a result, spending for the month rose sharply from last year, to $335.9 billion, up 10 percent. Thus far this year, spending is up about 1 percent.

So what makes this a golden age? Well, according to Thomas Simons of Jefferies & Co., without the shift in spending, “the [May] deficit would have been approximately $103 billion.” That’s significantly lower than the $124.6 billion deficit reported in May 2012.

Next, consider that for the next four months, assuming no big shocks or great changes, the government will essentially break even. That hasn’t been done in well over a decade. In the first eight months of the fiscal year the deficit was $626 billion, down about 25 percent from the first eight months of fiscal 2012. But the Congressional Budget Office is predicting that’s all the red ink we’ll print this fiscal year. It is projecting the deficit for the entire fiscal year will be $642 billion.

Why? Well, as the economy continues to expand, revenues will continue to rise and spending will fall. The government often reports smaller monthly surpluses, and occasionally surpluses, in June and September, as people and companies make quarterly payments. But it will likely come in with a big surplus this June, in part because some spending that usually takes place in June was pushed into May and in part because Treasury is anticipating a humongous $59 billion dividend from the government-owned mortgage company Fannie Mae. Combined with an anticipated surplus in September, the gusher of revenues anticipated in June will more than wipe out the anticipated deficits for July and August.

The greatest desideratum of fiscal hawks is for the government to take in as much money as it spends. For the next four months, for the first time in recent memory, that will be the case.