The budget deficit in the U.S. shrank in the last fiscal year to the lowest level as a share of the economy since 2007 as faster growth and falling unemployment boosted tax receipts, the Treasury Department said.
The shortfall was $483.4 billion in the 12 months to Sept. 30, compared with $680.2 billion a year earlier, the Treasury said today in Washington. That’s about a third of the record $1.4 trillion deficit reached in 2009. Revenue jumped 8.9 percent and spending gained 1.4 percent, the figures showed.
Treasury Secretary Jacob J. Lew said the fiscal improvement is partly tied to stronger growth, as the nation’s unemployment rate dropped to 5.9 percent in September from 7.2 percent a year earlier. Still, the deficit is forecast by the Congressional Budget Office to start widening again as an aging population prompts more spending on Social Security and health care.
“It’s down pretty substantially over the last several years,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “We’ve got an election coming up in a few weeks, and the key question is, what’s going to happen in the future and what are we going to do about the longer-term situation.”
Last month the government posted a $105.8 billion surplus, compared with a $75.1 billion surplus September 2013, today’s figures showed. The median estimate in a Bloomberg survey of 23 economists was for a surplus last month of $90 billion, with estimates ranging from $53 billion to $106 billion.
The CBO forecast a $486 billion shortfall for all of fiscal 2014, according to an Oct. 8 report. The deficit will start rising again in the presidential election year of 2016, the CBO projects.
Receipts in the fiscal year that began Oct. 1, 2013, totaled $3.02 trillion compared with $2.77 trillion a year earlier. Outlays increased to $3.5 trillion from $3.45 trillion in fiscal 2013, the report showed.
“Not since World War II, more than 60 years ago, has there been faster and more sustained deficit reduction,” Lew said. “The American economy today is better positioned than any other advanced economy in the world.”
The expiration of a 2 percentage-point cut in payroll taxes and an increase in higher-income tax rates also contributed to the better revenues. Both changes took place in January 2013, affecting the 2014 fiscal-year data from October through December.
Expenditures in fiscal year 2014 were driven up by outlays for Medicaid. Spending by the Department of Health and Human Services, which administers Medicare and Medicaid health programs, climbed 5.6 percent. Social Security Administration outlays increased by 4.4 percent.
Subsidies for health insurance under the Affordable Care Act added to spending, as did student loan costs, the CBO said in its analysis earlier this month.
Meanwhile, the government spent 4.9 percent less on Department of Defense military activities as across-the-board spending cuts called sequestration drove down costs. It also reduced outlays on unemployment benefits, with outlays to the unemployment trust fund dropping 35 percent from the prior year.
Though the federal deficit as a share of the economy has been shrinking in recent years, Americans ranked it sixth among 13 priorities for the mid-term elections this year, a Gallup poll taken Sept. 25-30 found. The budget shortfall outranked concerns including foreign affairs, taxes and immigration.
Asked which party would do a better job dealing with the deficit, a widening margin of respondents favored Republicans, Gallup reported. The party has a 20-point edge, up from 14 points in April.
Even so, the dwindling shortfall could keep conservatives from pushing for cuts should they retain control of the House and gain a majority in the Senate in the mid-term vote, Goldman Sachs Group Inc. analyst Alec Phillips wrote in an Oct. 10 note.
“The shrinking budget deficit has reduced the political urgency” to push for lower spending, Phillips wrote. “We expect a relatively neutral fiscal policy in 2015, albeit with a possibility of slightly greater spending increases than we forecast.”