Friday, February 28, 2014

Federal Budget Deficit Declines 12.9% Between 2012 and 2013

Deficits rise during recessions for a couple of simple reasons: Tax revenues decline as economic output shrinks.  Mandatory spending on social welfare programs increases.  The consequence of declining revenues and higher spending produces budget deficits.  Deficits can be reduced when the opposite happens.  That is what occurred between 2012 and 2013.  A growing economy and a tax increase led to higher revenue.  A slowdown in federal spending, particularly a decline in spending on healthcare, along with the increase in tax revenue, reduced the federal budget deficit from $1.1 trillion to $680 billion.  We still have to be concerned about future deficits as the baby boom generation ages.  However, the noise that we hear in the media about uncontrolled federal spending and huge budget deficits should be taken with a grain of salt.  Its all about politics.

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