Pethokoukis, Economics, Taxes and Spending

Whoa! Is the US on the verge of running a budget surplus?

050813budget

The US government ran a surplus of $112 billion in April 2013, according to the Congressional Budget Office, $52 billion more than a year ago. Now, April is usually a good month for the treasury thanks to income tax payments. Still, the surpluses recorded in April 2012 and 2013 were the first seen in that month since 2008. More good news: Revenue for the first seven months of the fiscal year is up 16%, or $220 billion, from the year-ago period.

To the number crunchers at Potomac Research, the combo of those surging revenues and the sequestration spending cuts points to a stunning possibility:

… official forecasters will have to radically alter their projections this summer.  The CBO forecast of $845 billion in red ink this year, 5.3% of GDP, is hopelessly outdated; the deficit will fall well below 5% of GDP, perhaps to about $700 billion.  Then the improvement really takes hold – instead of the official forecast of a $616 billion deficit in fiscal 2014, we’d anticipate something like $500 billion, close to 3% of GDP.  And in fiscal 2015, the deficit could drop below 2% of GDP, perhaps to $300 billion.

Call us crazy, but if the economy finally lifts off in 2014-2015, with GDP growth in the 4% neighborhood — with the sequester still in place – a surplus by fiscal 2015 is not totally out of the question.

With revenue coming in above expectations and spending below, the deficit numbers are turning out way better than expected. Merely a sharp drop might greatly influence the current austerity debate. (Keep in mind that even if GDP growth should approach 4%, the belated upturn would still mean the recovery has been a weak one by historical standards.)

If the federal government runs an actual surplus, few politicians are going to want to hear much about the latest Simpson-Bowles debt reduction blueprint. And not only might pressure mount to rejigger the sequester, but good luck to the Obama White House in getting any more tax hikes out of Congress. The real concern, of course, is that any momentum or interest in long-term entitlement reform might evaporate.

48 thoughts on “Whoa! Is the US on the verge of running a budget surplus?

  1. I sure hope this isn’t true. Politicians should never have money burning a hole in their pockets. The last accidental “surplus” gave birth to Medicare Part D.

  2. This is a scam. The figures to pay attention to are from the US Treasury which actually records how much the government owes. They show daily the US debt to the penny, but publicly held and intra-governmental debt, and you can search by date range. This shows from the last day in March through the first day in May:

    http://www.treasurydirect.gov/NP/debt/search?startMonth=03&startDay=31&startYear=2013&endMonth=05&endDay=01&endYear=2013

    The government constantly rolls over short term debt,paying it off and buying new debt, and its tax revenue fluctuates (e.g. you’d expect more to come in during tax month). Each category of debt was larger after April.

    • You should be aware that the reson debt levels were higher in April despite running a surplus was beause the governemnt needed to create a massive cash horde as a result of the silliness of the debt suspension legislation.

      Why?
      Congress didn’t want to pass a debt increase but didn’t want to deal with the consequences of not doing it. Thus the debt suspesnison. But a simple debt suspension wouldn’t work. If, when the debt limit suspension expires on May 19, the limit reverts to its previous value, then instant default would occur. Unacceptable. If it reverts to some predefined number, then in practice all you have done is raised the limit to this new number. Also unacceptable to republicans. This was finessed by having the debt limit automtically rise to what ever the US debt is on May 16th (or at some specific time on the 17th). Since no number is specified, republicans can pretend that didn’t vote to raise the limit.

      The administration doesn’t think the limit should even exist, (They believe that when congress votes to spend more than it raises that can and should include the authorization for the necessary borrowing).

      Thus the logical consequence, from the view of the administration, of not specifying the new limit is that the administration must maximize borrowing (and horde cash) prior to May 17th.

      • The timing is irrelevant; the amount is what is consequential.

        These fools are literally flooding markets with unnecessary liquidity, in order to “stimulate” a crippled economy, due to their own shitty fiscal policies.

        It’s not only pushing on a string, it’s trying to pull it using a tank while simultaneously dropping a 16 ton weight on it.

        Completely counterproductive and useless.

  3. Of course the government uses multiple accounting methods, cash and accrual, each of which hides spending in different ways. Even the official total “national debt” figure ignores intra-governmental debt for federal pensions, despite including social security debt. The GAO among others has pointed out the deficits are different depending on the accounting methods chosen… and neither seems to match what the US Treasury reports. The GAO (among others) has had other complaints over the years about the way the government tries to obfuscate debt, deficits, and spending, details and links on this page:

    http://www.politicsdebunked.com/article-list/goverment-hides-spending

  4. Oh, also it is not clear why you use “government consumption and investment” figures, which tend to be like half of total government spending. The federal BEA explains their various figures here:
    http://www.bea.gov/faq/index.cfm?faq_id=552

    and the page in the last post I made points to links explaining how even the “total expenditure” or the budget’s total outlay figures don’t include all spending (a the federal level there is 1 place in the budget where they list total “gross outlays” rather than “net outlays” which are what is usually quoted almost everyplace.. despite leaving off a large chunk of spending). When dealing with spending vs. revenue potential there is some argument for looking at “net outlays”.

  5. The Federal Reserve did a study last year of the CBO’s past few decades of deficit projections. It says (where RW=”Random Walk”):

    http://research.stlouisfed.org/publications/review/12/01/21-40Kliesen.pdf
    “the CBO’s cumulative 5-year projections are considerably worse than projections from the RW model; [...]the deficit projections beyond a year were unreliable. Importantly, we found that the projections were biased in the direction of underprojecting the size of the deficit or overprojecting the size of the surplus.”

    So any optimism needs to be taken with a grain of salt.
    Sorry for multiple posts, but including more than one link in the past lead to posts being sent to the moderator.

    • The CBO has become the Useful Idiot in support of expanding government spending. As you highlight, their projections have zero credibility in fact, but Congress and the media blithely go on citing them because it fits their narrative. Kind of like watching Dick Morris show up every night on FNC to make another prediction — except FNC finally ditched him when nothing he predicted ever happened. The CBO will just keep rolling along.

      • The CBO does its job well. The trouble is that it has to use the government projections as facts and that leads to a huge problem when making predictions. Given the rules it does not matter who does the analysis; the results will always be optimistic.

    • Why would you say that the Bush tax cuts were bad? No matter how much money the government takes in taxes, they’ll always want more. And do we really believe that government spending is good for the economy? If that was true, then our economy would be roaring right now. We’ve been running an experiment for the last 13 years where the government spends massive amounts of money without actually taking the money away from the people (the private sector) in the form of taxes and thus reducing the spending of the private sector. Lots of spending (both public and private) and low taxes. If spending is the key to our economy, then we’ve had the best of both worlds. But that experiment has failed to create a strong, self-sustaining economy. Raising taxes (to close the deficit) takes money away from the private sector and reduces private spending, while not affecting government spending. So, aggregate spending will go down. Cutting government spending will also reduce aggregate spending (public plus private) but since private spending creates new wealth that can be taxed (and public spending doesn’t), it’s a more sustainable model. That’s why all of this government spending has left us with a weak economy and massive debt – because it is an UNsustainable model. So, the key to reducing deficits isn’t tax raises or tax cuts, but cutting spending to achieve low public spending while maintaining private spending. A nice 2% sequester is just what we need every year.

      • not all private spending creates wealth which can be taxed/ A woman spends $1000 on a dress–not taxed.
        And much of government spendeing creates wealth–eg a new highway; a more educated productive workforce etc/

        • Well, if a woman spends $1000 on a dress, what does that $1000 cover? People sell things for more than their costs of producing them. For example, the maker of the dress spends, say, $600 on labor, raw materials, marketing, distribution, etc, and sells the dress for $1000, thus earning $400 in profits. That is new wealth, which is taxed in a variety of ways: corporate tax, income tax when profits are paid as income, dividend tax if profits are paid as dividends to shareholders, plus state level sales taxes – if there are any – on the transaction, etc. And yes, absolutely, some government spending is beneficial, like police. You can’t have a healthy, functioning economy without law and order. Another example is infrastructure spending. If the government pays for a new road or a new port, then economic activity can expand, so it’s an investment in future GDP and will increase tax revenue. But the vast majority of government spending isn’t infrastructure or education spending, or law and order or anything else that’s useful. In fact, paying thousands of bureaucrats to shuffle paper and make business difficult and expensive is actually counterproductive – slowing down economic activity. Paying people to stay home and be unemployed, or building bridges to nowhere or military weapons that we don’t really need are other examples.

          • And yes, absolutely, some government spending is beneficial, like police. You can’t have a healthy, functioning economy without law and order.

            The problem is that government cannot deliver order efficiently and certainly not any better than the free market. The market would not be paying police to raid the homes of people who engage in voluntary activities in private. It would not be paying for police to hide behind bushes trying to catch someone rolling through one of the seven government installed stop signs over a quarter mile stretch of road. It would not be paying police to hide in washrooms trying to lure men into propositioning them.

            The fact is that the government does not do anything very well and we would all be far better off with at little government as possible. Most people confuse anarchy with with anomy and society with government. If they kept the differences in mind they would clearly see that government is the source of most of the misery and instability that we now face and the biggest barrier to individual liberty and peace in society.

        • You have your analysis backwards, like all leftists.

          The goal of economic policy is not to maximize tax revenue. Tax revenue maximization occurs as a by-product of robust economic activity. Robust economic activity is achieved through simple, clear regulatory, taxation and legal guidelines. We currently have none of those.

          Further, government spending represents a claim on future assets, and is a tax, in addition to fostering resource misallocation and malfeasance.

          You should probably read this:

          http://www.econlib.org/library/Bastiat/basLaw1.html

          • Agreed 100%, but when debating socialists its best not to start out with “We should have “for profit” police”! Win them over incrementally…

          • Chris, wish that were possible, but its not.

            Mr. Right, Toad Manson, Max Blankhole, Larry Guvmint et al. are all massively eluded leftist suckbags (redundant) who cannot and will never understand economic tradeoffs, because they are fundamentally stupid people.

            That’s an awful thing to say, but these are people who are already stealing from you, and are too stupid to understand their folly.

            Vacuous leftist flotsam. Cut them loose.

          • The problem is not that the left supports big government and that the right is for small government. If you look at the actual events when government was controlled by either side we see that both are for big government and that the debate is mostly about who should control it. Bastiat, who I love reading, would have opposed both the current left and the right because both favour little economic freedom and a lot of big government.

        • If only most of government spending where for the things you cite — a new highway, a more educated workforce. Here’s what most government spending is:

          Incurring a cost of $1.20 to raise $1 (yes, compliance costs for income taxes are at least 20% of the revenue collected) and then send $1 to other people.

          Please tell me how that creates any net new wealth?

      • Why would you say that the Bush tax cuts were bad?

        They would have been great if Bush had not increased spending. That was the problem with the ‘Compassionate Conservative;’ He was neither compassionate nor conservative.

    • How were they bad? 2006-2008 set all time records for tax revenue receipts and he ran several monthly surpluses. They don’t mean much compared to total spending, which includes off the budget spending.

  6. The Receipts table of the report at the Congressional Budget Office show growth in personal and corporate taxes payed. The data does not break out how much was capital gains, and how much was cap gains taken in 2012 to avoid the higher rate in 2013 and future years.
    A casual observer might expect a drop in cap gains in 2013, just like the collapse car sales after the expiration of the cash for clunkers. If a careful examination of the tax data shows that the bulk of the increase in tax receipts was cap gains in the last quarter of 2012, then this should be expected to be a transient event and not a sustainable rise in tax receipts.

  7. I am disappointed Jimmy. The Fed stimulates by buying $1 trillion of new debt and you think that there is a hope in hell of a surplus. On what planet do you live? How can a central bank and an expanding government create prosperity create prosperity for the first time in human history? Can Americans get good outcomes by repeating the same wealth-destroying errors that Europeans, Asians, South Americans, and Africans have made time after time?

  8. “2015, the deficit could drop perhaps to $300 billion.” – Big whoop! – that was considered obscenely high during GWB, but with with defining deviancy down under hussein, that is considered great!

  9. Time for Rush to stop citing “Jimmy P”. Between lauding Bernanke’s policies & this kind of tripe, he’s sounding more & more like a CNBC anchor. “The economy’s doing great!”, as long as you don’t believe what you see with your own eyes.

  10. The “number crunchers at Potomac Research” are crunching the wrong numbers. The projections they are citing are for CBO’s “baseline” scenario, which is manifestly unrealistic. For example, this scenario assumes that the Medicare “doc fix” will never be renewed, and thus, payment rates for physicians will be permanently cut by 25% at the start of 2014 and cut by even more in years thereafter.

    When CBO analysts produce budget projections, they typically calculate a “baseline scenario” (which approximates current law) and an “alternative fiscal” scenario (which approximates current policy). Those projections can be markedly different because certain current laws require future policy changes that are either impractical, untenable, or place significant burdens on the American people.

    The figures cited by Potomac Research assume these policy changes occur, when in fact, some of them have practically no chance of happening. The current law scenario assumes the sequester will last, and that is possible, but other assumptions in this scenario (such as nonrenewal of the “doc fix”) are clearly outside the realm of reality.

    http://www.justfactsdaily.com/krugman-and-obama-mislead-on-debts-and-deficits

    James D. Agresti | President | Just Facts

    • tax revenues will go up each year because of in=
      flation and increased population. Also, they will
      vary greatly each month depending on filing pat-
      terns. It still is true that had the bush tax cuts
      not been in place, the national debt would not
      have grown to the extent it did

  11. It is not the tax cuts. It is the government spending that is the problem. The US spends as much on its military related activities as it takes in from personal tax revenues. It spends an obscene amount on its welfare programs. Unless things change the game will end badly.

  12. Thank all of you for having a true debate as opposed to using profanity, humiliation, and hear-say. Numerous comments on this page have some sort of backing on either side of the partisan fence. THANK ALL FOR THIS RARE TREAT!

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