U.S. Budget Deficit Falls on Higher Tax Revenue

The U.S. government’s budget deficit shrank to its lowest amount in 8 years, thanks mostly to a record amount of tax revenue.  Total tax receipts rose 7.6% while outgoings rose 5.2%, causing the deficit to fall to its lowest amount since the global financial crisis. The current deficit has fallen to $438.9 billion for the 2015 fiscal year, a 9.2% decline from the prior year.

The U.S. government’s budget deficit shrank to its lowest amount in 8 years, thanks mostly to a record amount of tax revenue.  Total tax receipts rose 7.6% while outgoings rose 5.2%, causing the deficit to fall to its lowest amount since the global financial crisis. The current deficit has fallen to $438.9 billion for the 2015 fiscal year, a 9.2% decline from the prior year.

The Treasury Department said “a stronger economy” helped cause tax receipts to rise, with more economic activity, and thus more taxes paid, occurring throughout the country.  Total individual income tax collections rose to $162 billion, accounting for 44.4% of the U.S. government’s total receipts. Corporate taxes, at $75 billion, were just 46% of what was collected from individuals, and accounted for just 20.5% of total receipts.

Looming Ceiling

While less of a deficit requires less lending by the U.S. government to meet its obligations, the government is also facing a lack of liquidity, according to Treasury Secretary Jacob J. Lew, who has warned Congress that they will need to raise the debt ceiling before November 3. If they fail to do so, the U.S. will begin to default on its debts.

A standoff on the debt ceiling has occurred in 2011 and 2013, leading some analysts to worry that policymakers may indulge in grandstanding to cause another debt panic that could frighten already volatile equity markets around the world. In 2011, markets saw extreme volatility due to flirtations with a default from the then-strong Tea Party constituency of the Republican Party, who had grown to gain a foothold in the Congress in office. That caused Standard and Poor’s to downgrade the United States’s credit rating for the first time in history. The nation’s credit has failed to recover since then.

While the last-minute decision to extend the debt ceiling in 2013 had less serious repercussions, both Republicans and Democrats are working to come to an earlier agreement. Political analysts warn that the poor optics of a standoff in an election cycle could wreak havoc for both parties.

War Spending

Despite calls to curb government sending and some limited efforts to curtail military expenditures, the United States will continue to have a heavy presence in both Afghanistan and Iraq.

On Thursday, President Barack Obama announced the country would keep 9,800 military personnel in Afghanistan, and reduce the number by 4,300 in 2017. The remainder will help train native Afghan forces in the hope that they can counterbalance occasional sectarian violence and resurgent terrorist activity.

“I do not support the idea of endless war,” Obama said in a speech, adding that Afghanistan is “a serious partner that wants our help.”

President Obama had previously planned to pull out most troops through 2016, leaving only 1,000 in the country in 2017. The current count, which is 5 times that many military personnel, will also swell the cost of that presence in the country.