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The public policy blog of the American Enterprise Institute
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 The CBO forecast of $845 billion in red ink this year, 5.3% of GDP, is hopelessly outdated; the deficit will fall well below 5% of GDP, perhaps to about $700 billion.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.
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