America's budget deficit this year will be the lowest since 2007

By Corey Stern



Goldman Sachs thinks that the federal budget deficit this fiscal year will be the lowest it's been since the start of the financial crisis.
The Congressional Budget Office's most recent estimate from March puts the deficit for the year ending September 30, 2015 at $486 billion or 2.7 per cent of GDP.

This is virtually unchanged from the $483 billion deficit (2.8 per cent of GDP) that was recorded last fiscal year.

However, in a note to clients on Monday, analysts at Goldman said that recent data points to an upside surprise, and the firm says the deficit will actually go down from last year to $425 billion, or just 2.4 per cent of GDP.

If Goldman is correct, this would bring the deficit down to it's lowest level (both in dollars and as a percentage of GDP) since FY 2007, when it was $160.7 billion (1.1 per cent of GDP). This would also mark the sixth straight year in the decline of defect as a percentage of GDP since it ballooned to 9.8 per cent in 2009.

So what's causing the federal government to have less of a deficit than expected?

Goldman is mainly pointing to increased government revenues, though they said that federal spending was slightly lower than expected in 2015.

Here's Goldman:

This is largely due to stronger receipts, mainly from two sources: non-withheld personal income taxes and corporate income taxes. Much of the revenue strength relates to profits, either directly or indirectly. While a good deal of the upside surprise to date has been driven by prior-year activity, trends in receipts most directly tied to current activity have also been healthy; payroll taxes are up about 4 per cent fiscal year-to-date over the prior year, while withheld income taxes are up about 6%.

But those who want the government to be put on a diet shouldn't celebrate just yet.

"Although we expect the deficit to come in modestly lower this year, the improvement is apt to be temporary in our view, with a deficit of $525bn in FY2016 and $500bn in FY2017," Goldman wrote.

The predictions, in turn, are well above the CBO's March estimates of $455 billion deficits in both 2016 and 2017.