The incredible shrinking budget deficit continues

As I noted two and a half years ago, the best way to get the federal budget back in balance was to cut the growth of spending and pursue policies that helped the economy to grow. I’m not sure Washington has done much to pursue the latter point, but Congress has exceeded all expectations on the former: federal spending has not grown at all since the recovery started in June 2009.

The most important thing about all this progress on the deficit is that it was totally unexpected. Those are the kinds of things that move markets. Federal spending in calendar year 2013 was only slightly above its post-War average of 19.1% of GDP, by my calculations. Federal revenues were only slightly below their post-War average of 17.2% of GDP. Nobody on earth expected this to happen back in mid-2009. This achievement was brought about largely by a combination of a) no growth in spending and b) the recovery, which boosted the tax base. (Message to Obama: the economy can grow best when government does the least to “stimulate” it with transfer payments and make-work projects.)


The chart above makes it clear: spending has not increased since the recovery started (and it has even declined in the past few years), while tax revenues have surged—and most of the surge happened well before tax rates went up a year ago. I credit a gridlocked Congress and the economic recovery for this tremendous and welcome achievement.

via Calafia Beach Pundit: The incredible shrinking budget deficit continues.

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