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Economic Note: Federal Deficit Lowest Since 2008


by Patrick J. O'Keefe, Director of Economic Research

The Federal Government is on track to record its smallest deficit since fiscal year (FY) 2008.* 

Through the first 10 months of FY 2014, with revenues rising and the growth in outlays slowing, the Federal deficit (Chart 1) was almost one-quarter (24.2%) smaller than FY 2013’s comparable period. The current year’s deficit is almost two-thirds (63.7%) less than when deficits peaked in FY 2009 and FY 2010.

The recent progress in curtailing the Federal deficit is certainly welcome. But the longer term outlook is not encouraging according to a recent report of the non-partisan Congressional Budget Office.

FY 2014’s red-ink reductions are due to subdued (but sustained) economic growth augmented by policy changes that both increased revenues and slowed the rise in spending.

Federal receipts through July – almost $2.5 trillion – were $182 billion (8.0%) greater than in last year’s comparable period.  Most of the year-to-date rise reflects increased revenues from payroll taxes (up 9.0%, accounting for two-fifths of the gain), individual income taxes (up 4.9%, contributing 29.2% of the net increase), and corporate income taxes (up 14.4%, comprising 16.7% of the rise).

Federal spending during FY 2014’s first 10 months was 1.2% higher than in 2013’s comparable span. Year-to-date spending increases on inter alia Social Security (+4.6%), health-related transfers (+13.5%), and interest on the Federal debt (+3.1%), were partially offset by declines in defense outlays (-5.6%) and unemployment insurance payments (-36.6%).

Through the first 10 months of FY 2014, Federal debt increased by $949 billion. Despite this year’s smaller deficit, the growth in outstanding debt has been more than one quarter (29.2%) faster than the increase in FY 2013’s comparable period, when the U.S. Treasury had to “manage” its finances during an extended budget impasse. The year before, when the deficit was larger (but the politics less roiled), the comparable year-to-date debt increase was $1.2 trillion.

Federal debt exceeded $17.7 trillion (Chart 2) at the end of July.  Of that, $12.7 trillion is publicly held (i.e., globally by individuals and institutions other than the Federal government).

Year-to-date, interest payments on the public debt were 3.4% higher than during FY 2013’s first 10 months. Those payments will grow – absolutely and as a share of total outlays – as borrowing continues and interest rates rise.

Patrick J. O’Keefe is Director of Economic Research at CohnReznick. Economic Notes are designed to provide timely insight for clients and contacts of the Firm. Access all of our economic analyses and commentary in the Economic Insight section of our website and follow us on Twitter and LinkedIn.

*The Federal fiscal year runs from October through September.


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