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November 07, 2006

A shrinking budget deficit

The federal budget deficit has been undergoing an under-the-radar trend, says N.C. State University economist Mike Walden.

"It’s actually been shrinking," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service. "It’s been shrinking in total dollar amount, but, perhaps more importantly, it’s been shrinking as a percentage of the economy, which is ... what economists traditionally focus on.

"It’s shrinking, however, not because federal spending has been falling. (In fact federal spending has been rising at a fairly rapid rate, 10 percent a year.)

"But federal tax revenues have been increasing even faster due to the good economy," Walden explains. "So therefore we have been getting a shrinking budget deficit.

"However there is a caution here: This relationship may not persist, so the budget deficit is certainly not gone as a long-run issue."

Posted by deeshore at November 7, 2006 08:01 AM