Higher tax revenues helped the U.S. budget deficit drop to its lowest level in six years in fiscal 2014, falling by nearly one-third to $483 billion, the Treasury Department said on Wednesday.
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The deficit, which stood at $680 billion a year ago, has been falling dramatically since a run of four consecutive $1 trillion-plus deficits between 2009 and 2012. In 2008, the deficit was $459 billion.
The significant decrease in the deficit from the previous year was due to a combination of higher receipts and “stable outlays” in fiscal 2014, the Treasury Department said in a statement.
Government receipts totaled $3,021 billion in 2014, the report stated, or $247 billion higher than in 2013, a 9% increase. As a percentage of GDP, receipts equaled 17.5%, 0.8 percentage points higher than in 2013. The increase in receipts from 2013 can be attributed to “a stronger economy and the expiration of certain tax provisions,” the Treasury said.
Treasury Secretary Jacob Lew and Office of Management and Budget Director Shaun Donovan said the significant decline in the deficit represents a “return to fiscal normalcy.”
The two officials noted that the 2014 deficit fell to 2.8% of GDP, the lowest percentage since 2007 and the most significant improvement in four decades.
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Current policies and a strengthening U.S. economy “have resulted in a reduction of the U.S. budget deficit of approximately two-thirds -- the fastest sustained deficit reduction since World War II,” Lew said in the statement.
“What I don't think we have is an emergency right now,” Lew added later in a press conference. “The challenge we have is to sustain the economic engine so that we're seeing the growth now and over these next 10 years.”
The Treasury Department cited the following data for contributing to the decline:
- Individual income taxes were $1,394.6 billion, $8.4 billion higher than government estimates. Withheld and nonwithheld payments of individual income tax liability were higher than estimates by $1.6 billion and $7.0 billion, respectively.
- Corporate income taxes were $320.7 billion, $9.3 billion higher than estimates. This difference reflected higher-than-expected payments of 2014 corporation income tax liability of $9.7 billion that were partially offset by higher-than-estimated refunds, according to the Treasury Department.
- Social insurance and retirement receipts were $1,023.9 billion, $3.8 billion lower than estimates. This reduction was primarily attributable to lower-than-estimated deposits by states to the unemployment insurance trust fund of $3.0 billion. Reductions in other sources of social insurance and retirement receipts -- primarily Social Security and Medicare payroll taxes -- accounted for the remaining reduction in this source of receipts relative to government estimates.
In addition, growth in wages and salaries “made collections of individual and payroll taxes strong throughout the year,” the Treasury stated.
Another contributor to the increase was the expiration of the temporary cut in payroll taxes and the increase in tax rates on income above certain thresholds, which went into effect in January 2013.
Corporation income tax collections also increased in 2014 due to growth in taxable profits. Federal Reserve deposits of earnings also increased, primarily because of higher yields on a larger portfolio.
Outlays for 2014 were $3,504 billion, $50 billion above those in 2013, a 1% increase. As a percentage of GDP, outlays were 20.3%, half a percentage point lower than the prior year’s 20.8%.
Spending was lower than the previous year for many agencies and programs, according to Treasury, such as the Department of Defense; the unemployment insurance program; the Federal Deposit Insurance Corporation; flood insurance and disaster relief; crop insurance and the Supplemental Nutrition Assistance Program; and housing programs.
For the month of September, the Treasury recorded a budget surplus of $106 billion, up from a year-ago surplus of $75 billion. Analysts polled by Reuters had expected a $80.9 billion surplus for the final month of fiscal 2014.