US Federal Deficit Returns To Pre-Recession Levels

The Congressional Budget Office published an estimate for the finances of the Federal Government earlier this week. It shows the continuation of a trend that began in 2009 of declining federal spending paired with increasing and federal income (taxes).

Here's a chart of both going back to 1974, and keep in mind that the the 2014 data are an advance estimate:

With the economy steadily improving and providing more tax revenue, and federal spending moderating since the crisis, the deficit has shrunk each year for the past four fiscal years and is now only slightly above pre-recession levels:

Many have dubbed this "The Incredible Shrinking Budget Deficit" (here, and here, and here, and here, and here, and don't forget here).

Here's where the revenue comes from:

Personally, I'm not convinced that any of this matters, to be honest. I think that the supposedly harmful effects of too much government debt are vastly overrated, and that spending even in a deficit is an important function of our national government. To understand the mechanics, the public wants to equate the federal debt with household debt, yet this is patently false. The government is simply not a household, unless we consider it a household that cannot become insolvent (except through inflation) and is the only supplier of the world's reserve currency, the US dollar (more here). Since many focus on the budget deficit as if it's the potential cause of our future demise, I imagine the improving situation must be good news to them.

I am pretty sure that if I told you back in the dark days of 2009 that over the next five years that 1) federal spending will flat line, 2) tax revenues will increase by 50%, 3) the federal deficit will shrink by 65%, 4) we'll have more jobs than we did in 2007, and 5) the economy would be moderately expanding, I think that I would have been laughed at.

Yet all of this is true today.

The future is unknown and unknowable, of course, but I think that all of this is good news for the US economy.