Is the Federal Deficit Really Down?

White House officials think so, but doubts remain

White House officials told the Washington Post that they believe federal deficit will end the year at $1.3 trillion. While still extremely high, this would be a significant improvement over the $1.6 trillion originally projected for 2010. The federal deficit remains a major long-term economic challenge and a rallying point for Republicans. But the White House's prediction, made anonymously, is getting a skeptical reception. Is it true?

• This Is A Political Gamble  The Washington Post's David Cho warns, "by suggesting the deficit may have peaked, administration officials are taking a political gamble. If the favorable number does not hold up in coming months and the budget shortfall surpasses the $1.4 trillion recorded last year, voters in the November midterm elections could punish the Democrats for offering false hope. No official statement on the deficit is scheduled until the release of a late-summer review."

• High Unemployment Could Overturn This  24/7 Wall Street's Douglas McIntyre cautions, "Tax receipts may be improving now, but high unemployment, which could plague the workforce well into 2011, means that each taxpayer may not contribute as much to the IRS as expected in the original budget. While the costs of TARP and other financial programs created due to the credit crisis may have saved money, American businesses, especially small ones, are struggling with a lack of credit that will stymie their expansion."

• 'This Is Bad News'  EconoBlogger Brad Delong writes, "This is bad news: unemployment is higher than it was a year ago, and so the deficit ought to be higher: a lower deficit means that they have gotten fiscal policy off." Delong fumes at the Washington Post story, which he says misunderstands the situation. "It would have been much better to just let Peter Orszag grab the mike and publish what he said. ... Why oh why can't we have a better press corps."

• All Based On A Statistical 'Blip'  EconoBlogger Andrew Samwick contextualizes the piece. "The proper report on the economic news is that the cumulative deficit since the start of the fiscal year is -- for the first time in the fiscal year -- lower than the corresponding number in the prior fiscal year.  That this has finally happened in the sixth month of the fiscal year should indicate to all involved, whether David Cho as the author of the story or the anonymous administration officials, that this event cannot be claimed to be the start of a trend any more than it can be claimed to be another blip."

• 'Premature and Irresponsible'  White House Office of Management and Budget spokesman Kenneth Baer tells Reuters, "While the positive news is welcome, it is premature and irresponsible to be making deficit projections for the fiscal year as a whole."

• Shows White House Not Seeking More Stimulus  EconoBlogger Stan Collender says, "by leaking this story at this point in the year (budget numbers are not officially updated until the midsession review is released over the summer), the White House is clearly signally several things." It doesn't believe more stimulus is needed, it doesn't believe Congress can pass more stimulus, and now it wants to focus on selling its efforts at securing economic recovery.