The Budget Deficit is Shrinking Fast but Nobody Seems to Care

Shouldn’t this be a bigger headline? Shouldn’t CNBC be focusing on this as much as it focused on the ValueAct/Microsoft (NASDAQ: MSFT [FREE Stock Trend Analysis]) story on Monday?

In case you missed it—and you probably did—Goldman Sachs (NYSE: GS) issued a report showing that after four years of a ballooning budget deficit that brought the country over the trillion dollar mark, it’s now decreasing (and not by just a little).

Goldman analysts first believed that the deficit would stand at $900 billion in the current fiscal year. Then, they changed it to $850 billion and now, $775 billion—that’s 4.8 percent of economic output.

One of the reasons for that is the healing economy. A better economy means higher wages, more people working, and more confidence to spend. That’s good for business if you’re the treasury.

Since February 28, 2009, the S&P 500 has seen total returns of 133 percent—an average annualized gain of 23 percent. Generating capital gains taxes, along with all of that income and sales tax has caused better than expected inflows to the treasury and assuming the economy continues to improve (let’s be positive), those inflows should continue to rise.

In fact, The Wall Street Journal reported that revenue for the first half of the fiscal year are 12.5 percent higher than expected.

Then there’s the bottom line numbers. You would probably think that the sequester and the expiration of the Bush era tax cuts have a lot to do with the dramatically lower government spending of late. According to Goldman, the savings gained from those changes are too new to have any effect on deficit numbers. That will be an added bonus in future reports.

One reason this isn’t the big news that it could be is because some economists aren’t calling this a win. A company’s investors wouldn’t be happy if, in an attempt to pay down debt, the company shut down nearly all operations. That would be of great service to its debt but its overall health would suffer.

Economists are afraid that this is what’s happening in Washington. The budget deficit is falling but are we doing the economic a positive service by sending air traffic controllers home? The sequester will amount to $85 billion in savings but at the expense of economic activity and that’s no way to save, according to the Goldman report.

But for now, let’s be happy that the deficit has shrunk and the economy continues to grow. That’s good news worth talking about.

(c) 2013 Benzinga does not provide investment advice. All rights reserved.

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