Will the U.S. Deficit Finally Fall Below $1 Trillion?

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Washington’s series of economic dramas — predominantly the fiscal cliff and sequestration day — have put government spending under the microscope of both political and economic analysts. With the United States Treasury Department releasing its budget for February on Wednesday, the government has given them additional information to mull over and use to formulate a new assessment on the health of the nation.

After posting an unexpected surplus of $2.9 billion in the month of January, the Treasury Department headed back into the red in February, reporting that the deficit grew by $203.5 billion last month, slightly below the consensus for $205 billion. However, the gap was $28 billion, or 12 percent, smaller than it was in the same month last year, and the narrowing imbalance between spending and revenue is an indication that the deficit will improve this fiscal year, which ends on September 30.

If lawmakers shake off the current waves rocking the budget discussions taking place in the House of Representatives and the Senate and manage to hold fiscal policy steady, the deficit for this year is expected to total $845 billion. Provided that the deficit does come in near that figure, the United States will show itself to be changing directions; at $845 billion, the U.S. deficit will have shed $240 billion from its fiscal 2012 level and stand as the first deficit to fall below $1 trillion dollars since fiscal 2008, according to the non-partisan Congressional Budget Office.

Already, in the first five months of the fiscal year, the United States’ deficit of $494 billion is $87 billion less than it was in the same period of fiscal 2012.

The narrowing of the gap between spending and revenue was driven by a 19 percent increase in revenue from February of last year; this jump included the additional gains from the expiration of the payroll tax holiday, which was implemented at the beginning of 2013. A slowdown in federal spending has also played a role in the shrinking deficit.

These numbers give investors valuable insight into the state of the economy. In basic terms, higher tax receipts — as February’s budget figures showed — mean more revenue for the federal government, and therefore an improved deficit situation. But more particularly, a smaller deficit translates into fewer treasury bonds issued, which, in turn, will lead to a rise in the price of the bonds.

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