Our Swiftly Melting Deficit, Or How the U.S. is Killing It

[DonViejo]

by Daniel Gross May 9, 2013 4:30 PM EDT

Just when everyone wrote us off as the next Greece, we started shrinking our deficit, then shrunk it some more. Daniel Gross on what’s behind the surge.

A few funny things happened this spring as the U.S. hurtled along the road to fiscal degeneracy. The annual deficit shrunk by nearly a third, the size of the debt owned by investors began to shrink, and the government borrowed money for free. Yes, the Golden Age of Deficit Reduction has begun.

The official April Treasury Monthly Statement comes out on Friday. But the Congressional Budget Office’s monthly review for April, released earlier this week, bears good news. The deficit was $489 billion through the first seven months of fiscal 2013, compared with $720 billion in the first seven months of fiscal 2012, a decline of $230 billion, or 32 percent. Meanwhile, the government collected so much money in April that it paid down about $50 billion of the debt it owes to investors around the world.

While the supply of debt fell, demand remained constant. People still need a safe place to put money in this turbulent world. And so this week, the U.S. government sold $20 billion of 28-day bills with an interest rate of zero. That’s right. Rational people forked over $20 billion in cash to the U.S. Treasury Department, said they’d be back to pick it up on June 6, and didn’t demand any interest.

What in the name of Keynes is going on?

We’ve discussed this before. But it bears repeating: The miracle cure for deficits—last fiscal year it was $1.089 trillion—is growth and higher taxes. Now we’re getting both. In the U.S. today there are two million more people working than a year ago, at slightly higher wages. That translates into more payroll and income taxes. Payroll taxes were raised substantially on January 1, 2013, from 4.2 percent of the first $133,700 to 6.2 percent. And higher taxes on the investment and regular income of very high earners went into effect as well. What’s more, in anticipation of the higher taxes, companies in 2012 shoveled dividends and bonuses out the door in late 2012. In the first few months of 2013, especially in April, people had to pay tax on all that income.

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http://www.thedailybeast.com/articles/2013/05/09/our-swiftly-melting-deficit-or-how-the-u-s-is-killing-it.html

[xtraxritical]

1. Well bang a gong the Bush gang is gone!

[Hosnon]

2. Payroll taxes...

"Payroll taxes were raised substantially on January 1, 2013, from 4.2 percent of the first $133,700 to 6.2 percent."

Isn't that just for SS funding?

[muriel_volestrangler]

5. Yes, but there had been payments from general taxation into the fund to make up for the 2%

that wasn't being put in from payroll taxes. Now that the 2% is back in the tax, that payment has stopped.

[Yavin4]

3. And now you know why the Repubs are screaming, "Benghazi!"

Lower UE + Lower Deficit = No other Republican talking point.

[bemildred]

4. Lew says Fannie Mae payment helps delay debt limit until Labor Day

WASHINGTON -- A nearly $60-billion dividend payment to the government by taxpayer-owned Fannie Mae will help push off the effective date on which the U.S. would hit its debt limit until at least Labor Day, Treasury Secretary Jacob J. Lew said Friday.
But lawmakers still should raise the debt limit soon to avoid creating anxiety about a potential first-ever federal default, Lew told CNBC.

"People shouldn’t relax," Lew said in an interview in London, where he will be attending a Group of Seven meeting of finance ministers and central bankers. "Congress should deal with his right away."

Lew noted that the nation technically will hit its debt limit in just a few days, but improved government finances this year and Treasury accounting maneuvers would allow for continued borrowing for a while.

http://www.latimes.com/business/money/la-fi-mo-debt-limit-lew-fannie-mae-economy-20130510,0,7860735.story