The U.S. posted its smallest budget deficit in five years as employment gains and higher taxes propelled revenue to a record, while spending fell by the most since the Eisenhower administration.
Outlays exceeded receipts by $680.3 billion in the 12 months ended Sept. 30, the narrowest gap since 2008, compared with a $1.09 trillion shortfall in fiscal 2012, the Treasury Department said today in Washington. In September, the U.S. recorded a $75.1 billion surplus, little changed from the surplus in the same month a year earlier.
Stronger hiring has helped shrink the country’s deficit as a share of gross domestic product by more than half in the past four years, narrowing it from a record $1.42 trillion in 2009. Bolstering revenue this year were higher payroll taxes Congress allowed in January, while spending has been restrained by across-the-board cuts known as sequestration that lawmakers failed to prevent in March.
“It is a reflection of the shifting fiscal paradigm in which higher tax rates and the improving economy are driving higher revenue intake,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York. “At the same time, there is a thrust towards cuts in government spending.”
Revenue jumped 15.2 percent to $301.4 billion in September from a year earlier, bringing the annual figure to an all-time high of $2.77 trillion compared with $2.45 trillion in 2012, today’s report showed. Spending increased 21.5 percent to $226.4 billion last month, contributing to a 12-month total of $3.45 trillion that declined from $3.54 trillion a year earlier, it showed.
The 2.4 percent drop in annual spending last fiscal year was the steepest since 1955, according to Treasury data compiled by Bloomberg.
The unemployment rate fell to an almost five-year low of 7.2 percent in September, the Labor Department reported last week. Payrolls have grown by 1.6 million workers so far this year.
“Our deficits are getting smaller,” President Barack Obama told high school students in Brooklyn, New York, on Oct. 25, as he campaigned for his budget goals. “We don’t have to choose between growth and fiscal responsibility; we’ve got to do both.”
Congress is working toward a new budget agreement after a battle between Tea Party-allied Republicans and the Obama administration over limiting debt led to partial suspension of federal operations earlier this month.
The agreement reached after the 16-day government shutdown set a Dec. 13 deadline for budget negotiations.
The mandatory cuts don’t touch benefit payments for programs such as Social Security, Medicare and Medicaid. Many Republicans want to replace the automatic cuts with reductions in spending on these entitlement programs that account for most of the nation’s long-term debt. Democrats including Obama have indicated they’re open to some of these ideas as long as they are paired with new tax revenue, which Republicans oppose.
“Congress must build on this progress by crafting a pro-jobs and pro-growth budget agreement that strengthens the economy while maintaining fiscal discipline,” Treasury Secretary Jacob J. Lew said in a statement today.
The Treasury said the 2013 deficit amounted to 4.1 percent of GDP. The shortfall was forecast to be 3.9 percent of GDP this year, according to Congressional Budget Office projections last month, down from 10.1 percent in 2009.
A short-term shrinkage of annual budget deficits isn’t enough to reverse the 25-year growth of U.S. debt that requires Congress to choose among spending cuts, tax increases or a combination of both.
The CBO estimates rising spending on Medicare and Social Security will widen the deficit to 6.5 percent of GDP in 2038, greater than any year between 1947 and 2008. Economists including former Federal Reserve Vice Chairman Alan Blinder say the change in the entitlements system is necessary.
“Unless that happens, the budget deficit as a share of GDP and therefore the national debt as a share of GDP is headed off for the wild blue yonder,” Blinder said in an Oct. 17 Bloomberg Radio interview. “And that is what we need to stop.”