President Bush today was celebrating news that the FY 2007 budget deficit will shrink to $205 billion, which is lower than projected, and slighly less than half of what it was in 2004. A slide presentation from the Office of Management and Budget’s mid-year review is available here. It is important to note what this tells us and doesn’t tell us about the nations’ fiscal health.
The numbers once again reinforce supply side theory, because tax receipts have continued to rise with the growing economy that has experienced steady growth as a result of the Bush tax cuts However, it is important to note that a shrinking deficit does not necessarily mean that the size of government is shrinking–as long as spending is increasing along with tax recipts.
The most important thing to keep in mind is that the annual deficits mean very little in the context of the looming entitlement crisis, which could mean long-term deficits somewhere in the neighborhood of $59 trillion, by one recent estimate.
So yes, it’s better that the deficit is narrowing rather than growing, but it’s important to put the number in a broader context.