June U.S. Budget Deficit Drops More Than Expected as Tax Revenue Rises

The U.S. economic recovery may not be slowing as much as first feared, if the nation's latest fiscal report is any indicator. The latest data comes in the form of news that the federal budget deficit came in at a smaller-than-expected $68.4 billion in June, thanks largely to a rise in corporate tax revenues.

To put that in perspective, the June deficit represents a hefty 27.3% decline from the $94.3 billion deficit recorded a year ago, when the deficit swelled in part because of fiscal stimulus and the end of bank bailout spending.

This year, a Bloomberg survey had forecast a $70 billion deficit for June, after a $135.9 billion deficit in May and a $82.7 billion deficit in April. The year-to-date deficit figures are trending positive as well: For the first nine months of this year, the budget gap totaled $1.003 trillion, compared to $1.086 trillion for the same period last year.

A Rising Tide Lifts Uncle Sam's Boat

Digging deeper, the numbers reveal more encouraging news. Although the upward trend in corporate tax revenue remains the most encouraging datapoint, individual income tax revenue also shows signs of a rebound.

In the nine months of this fiscal year corporate tax revenue is up 30.4%, to $132.9 billion, on a year-over-year basis. That's an improvement from the 17.4% and 12.9% year-over-year increases recorded in May and April, respectively.

Meanwhile, in the same nine-month period, individual taxes fell 4.4% to $655.4 billion on a year-over-year basis in June. Yet that 4.4% decline represents a substantial improvement from the 7.8% and 11.8% year-over-year declines recorded in May and April.

Overall, Obama administration has forecast a $1.6 trillion deficit for the current fiscal year, which began October 1, 2009. The U.S. government posted a record $1.42 trillion deficit last year, fiscal 2009, following a $454.8 billion deficit in fiscal 2008.

Baseball Wisdom for U.S. Finances?

In sum, the June deficit report reinforces a modestly-improving budget picture that's appeared over the past three months. The fact that corporate tax revenues are rising faster than individual income tax revenue is consistent with data which suggests private sector employers are hiring cautiously, despite rising sales and earnings, as the U.S. economy continues to recover.

In theory, if the government's cheery revenue trend continues, it will be easier to cut the budget deficit. Although entitlement spending (for Social Security, Medicare and Medicaid) and large outlays for defense represent the bulk of the budget -- about 64% of the total federal budget in 2009 -- the upward trend in tax revenue provides a modest tailwind for budget officials. All other factors being equal, it's easier to balance a budget during periods of rising revenue in an economic expansion, than it is to try to do the same when the economy is in the tank and taxpayers are tightening their belts.

And so, on a day when the baseball world lost New York Yankee Owner George Steinbrenner, who famously said, "I'm a lousy loser, and I ain't about to practice," perhaps Congress can find inspiration in Steinbrenner's words and take the difficult spending and taxation steps necessary to bring the federal budget back into line -- and make the nation a winner again, too.