A funny thing is happening on the way to the next debt ceiling showdown. When we last left our congressional super heroes they had tied our country to the proverbial railroad tracks and said the train was coming on May 18 (the current expiration date for the debt ceiling extension) – if you’re old enough for the analogy, think Underdog and Polly Purebred.
But in a plot twist that would surprise only someone who has been living in a cave since President Obama was elected, Congress has done nothing in anticipation of this Saturday deadline.
The good news for the American people is that the train is running late!
So what slowed the train? Well, simply put, there has been a significant increase in tax collections. The Treasury department reported a $112.9 billion surplus in April, the biggest surplus since 2008 and an astounding 91% greater than the $59.1 billion surplus in April of last year. And get this, as a result of the surplus, the deficit is now 32% lower through the first seven months of this fiscal year than in the same period last year. Just in case you missed that: this year’s deficit is running 32% lower than last year’s.
What’s the best way to achieve sustained deficit reduction? Well without getting into a fist fight over whether we have a spending problem or a revenue problem, we posit that sustained deficit reduction is best achieved with revenue growth – which is predicated on reasonable tax rates and a growing economy, exceeding spending growth – which is predicated on reasonable spending decisions.
Well guess what? It turns out that spending in April 2013 over April 2012 is up about 13%. But revenue grew in April 2013 over April 2012 by 28%. If that trend can be sustained, the deficit will continue to drop. Keep in mind, that revenue increase may be predicated, in part, on taxpayers’ expectations of the 2013 tax hikes but these are fourth quarter 2012 collections so these are tax collections at the old, lower rates.
Putting all of this to its simplest consequence, Treasury officials say the U.S. will pay down debt this quarter for the first time in six years. In June, the Treasury will also get a $59.4 billion dividend from Fannie Mae, leading Treasury Secretary Jacob Lew to say “thanks to the dividend and increased tax collections, the debt ceiling will not be breached until at least September 2, and possibly not until October.”
The real numbers driving these dynamics are important to evaluate objectively. The U.S. economy is growing, albeit far less than its potential. The U.S. economy is creating jobs, albeit at a lower rate and at lower pay levels than ideal. Pessimists, especially some with a hyper-partisan agenda, have declared the U.S. economy dead or dying, hopelessly beyond saving, thus bringing the reign of the U.S. as the world’s political and economic shining light to an end. Unfortunately for such naysayers, the tax, deficit, growth and payroll numbers say these folks are wrong. And if the economy picks up more in the second half of 2013 as many economists expect, just imagine what will happen to the numbers outlined above.
But what about the debt ceiling fight? Well, even with these positive developments, we will still reach the debt ceiling sometime this year. Our Superhero Congress has several more months to either grow up or to otherwise save Polly Purebred before she’s run over by the train.