Since February, tax receipts are up 11 percent from the comparable period in the prior fiscal year. Meanwhile, so far this year, spending is down 3 percent from fiscal 2009. Let's assume that for the remaining three months of fiscal 2010, revenues continue to be 9 percent greater and spending 3 percent less than in the final three months of fiscal 2009. The year would close with a deficit of $1.2 trillion--an improvement of $350 billion over the projection made in February. My guess is that OMB's midsession review, which will come out in August, will show that the fiscal picture for both fiscal 2010 and 2011 is better than we think.Recovering tax revenue is fine news, indeed. But a lower deficit isn't inherently good, in the short term. For Keynesians -- and I think Gross would count himself as one -- higher deficits are required in the short run to replace the shortfall in aggregate demand. So "the deficit is coming down" isn't all positive. It's indicative of a recovering private sector (hooray!), but also of failed efforts to spend up the deficit through state aid, jobless benefits, or new infrastructure projects.
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