The deficit is already shrinking, in one chart

November 21, 2012

There's been a lot of scary talk about what will happen to the United States if we don't start reining in the deficit. But part of the reason that the deficit has been so high as of late is because of the recession: Lower incomes have meant lower tax revenue, while government spending spiked under the 2009 stimulus and bank bailouts. As the economy has recovered and those programs have phased out, the deficit has shrunk rapidly as well.

"From fiscal 2009 to fiscal 2012, the deficit shrank 3.1 percentage points, from 10.1% to 7.0% of GDP," reports Investors Business Daily, citing figures from the Congressional Budget Office. IBD notes that that larger-than-expected returns from bank bailouts, slowing growth in Medicare costs, the drawdown in Iraq and Afghanistan, and the $900 billion in already enacted Budget Control Act cuts also helped curb the deficit:


(Investors Business Daily)

That doesn't mean we can wave away the long-term problems with the federal budget simply by continuing on the current course.

But it's also a reminder that part of the reason that the federal deficit has recently hit new heights is because of cyclical factors — an outgrowth of the economic downturn and the government's efforts to put the brakes on the recession — not just structural ones. And the reason that it's now coming down is that the government has undertaken austerity measures that will remain in place regardless of how lawmakers handle the fiscal cliff.

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