The federal budget deficit fell faster last year than in any year since the end of World War II, according to a Treasury Department report on Thursday. It declined from $1.1 trillion in 2012 to $680 billion in 2013.
That represents the smallest deficit since 2008 in nominal terms. It’s now 4.1 percent of GDP, dropping from a high of more than 10 percent during the depths of the recession. It’s less than half of what it was in 2009, when the recession ended.
CREDIT: New York Times
The good news is that part of the decline is being driven by higher tax revenue as the economy slowly recovers. “Growth in tax revenue from an improving economy accounted for much of the decline in the deficit,” Annie Lowrey at the New York Times reports. Tax revenue increased $234 billion over last year, reaching $2.8 trillion, growth of about 12.9 percent.
But austerity also played a big role. Part of the increase in tax revenue is also due to higher tax rates, including the lapse of the payroll tax cut. The deficit also fell thanks to depressed government spending. “Over the same period, total government spending barely grew, rising to $3.9 trillion, from $3.8 trillion a year earlier,” Lowrey notes. Federal budget outlays fell as a proportion of GDP from 22 percent to 20.8 percent. Since 2011, Congress has enacted $2.4 trillion in deficit reduction, nearly three-quarters of which has come from spending cuts. Government investment in long-term priorities has fallen below any level seen since World War II.
The deficit may be falling, but hardship isn’t necessarily following suit. Unemployment still stands at 6.6 percent, and the long-term unemployed make up nearly 40 percent of that figure, yet Republicans let their benefits lapse over concerns that it would cost too much to extend them. Incomes have been stagnant or falling, making it hard for many to make ends meet, but Congress reduced food stamps twice and welfare benefits are quickly losing value.
And without the deep spending cuts, the health of the economy would look much better. There would have been 2.4 million additional jobs since 2010. The deficit would have improved even faster without last year’s automatic sequestration cuts, which are still continuing for many programs.