Are Your Higher Taxes Helping Decrease the Deficit?

Treasury

While the rate of improvement in the federal deficit is strong, it did slow in May with a higher-than-expected monthly deficit of $138.7 billion. As the United States Department of the Treasury reported Wednesday, that jump represented a 10 percent increase when compared to the figure reported in May of last year.

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Still, the budget deficit is on track to post its smallest budget deficit in five years because higher taxes — including the payroll tax increase implemented in January — and the modestly improving economy have provided additional revenue. The total budget deficit for the first eight months of the fiscal year, which began on October 1, amounted to $626.33 billion, a decrease of approximately 26 percent from the same period a year earlier. Provided current policies remain in effect, calculations conducted by the Congressional Budget Office show that the deficit will likely fall to $642 billion for the current fiscal year and drop as low as $378 billion by 2015. Regardless, this will be the first time that the federal government’s yearly deficit will drop below $1 trillion since 2008, when spending outpaced revenue by $458.55 billion.

The nation’s slowly improving finances is one reason that Standard & Poor’s lifted its U.S.’s AA+ credit-rating outlook to “stable” from “negative” on Monday. But “the fiscal picture has a very long way to go before it is on a sustainable path,” Thomas Simons, a government-debt economist, told Bloomberg.