Deficit shrinks from last year’s record

DEFICIT SHRINKS FROM LAST YEAR’S RECORD…. Deficit hawks probably won’t be pleased with the total, but they should at least be pleased with the direction.

The federal government budget deficit shrank in fiscal 2010, but the big gap was only $122 billion lower than the record high set a year ago.

The U.S. spent $1.294 trillion more than it collected in the fiscal year that ended Sept. 30, the Treasury Department said Friday.

The deficit amounted to 8.9% of gross domestic product. That’s down from fiscal 2009, when the deficit of $1.416 trillion was 10.0% of GDP.

Spending fell and revenues rose in fiscal 2010 as the economy recovered from the deep recession that contributed to the nation’s troubled fiscal condition.

If this sounds familiar, it’s because the Congressional Budget Office reported on its estimate of the federal budget deficit for FY2010 would just last week. Today’s Treasury report is the official deficit tally, though as it turns out, the CBO projection was almost on the nose.

The $1.294 trillion shortfall is smaller than last year’s total; it’s slightly lower than the deficit President Obama inherited from his predecessor; and the final figure was smaller than projections made by the administration and the CBO earlier this year.

Want to have some fun? Ask your favorite Tea Partier whether the deficit they claim to care so much about is higher or lower now than when Obama took office. They won’t care for the answer, but it’s true.

What’s more, as Stan Collender recently noted, the $122 billion improvement on the deficit “is the biggest one-year nominal drop in the deficit that has ever occurred.” We probably won’t see headlines blaring, “U.S. achieves biggest one-year deficit reduction in American history,” but that just happens to be the case.

So, why won’t this news be heralded as a positive development. For all the reasons we talked about last week.

For those of us who want to see the government borrow more in order to invest in economic growth and job creation, news of the deficit going down isn’t good news at all. Borrowing more money is exceedingly cheap right now, and the economy desperately needs a boost. The fact that the deficit is shrinking may seem like good news in the abstract, but it’s arguably the opposite of what we need.

And for those who consider the deficit a civilization-threatening scourge, we may be witnessing “the biggest one-year nominal drop in the deficit that has ever occurred,” but it’s not enough because it’s still $1.29 trillion. Indeed, Senate Minority Leader Mitch McConnell responded to the report showing a shrinking a deficit with a press release, boasting that the new figure is proof that Republicans are right (about what was unclear).

As Collender put the reduction “was both too much and not enough.”

Jonathan Cohn added last week that there were plenty of center-right Dems who balked at deficit spending, even to improve the economy, because they were afraid of a backlash: “Running higher deficits, they thought, would incur the wrath of voters and make re-election difficult. Well, now they’ve gotten their way. The deficit is coming down. Let’s see how much the voters care come November.”