The nation may finally be catching a break on the impact of federal red ink – at least for now.

The result could help both the government and the American consumer pay down their debts.

MarketWatch noted the U.S. deficit appears to be headed toward its lowest level in seven years.

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The Congressional Budget Office projects the deficit will decline to $514 billion for the current fiscal year. Deutsche Bank estimates the deficit could shrink even more, to $465 billion. Either of those figures are a huge improvement over the high-water mark of $1 trillion-plus annual deficits from 2009 to 2012.

“The combination of rising tax revenue and, to a lesser extent, constraints on federal spending are pushing the national deficit down. And soon it could even reach prerecession levels,” MarketWatch predicted.

The last time the government deficit was so low was in 2007 – before the Great Recession.

“The steepening drop in the deficit arguably could not come at a better time, with the Federal Reserve moving to end a bond-buying stimulus program that’s kept U.S. interest rates ultra-low for years,” MarketWatch said.

Deutsche Bank senior economist Carl Riccadonna said a shrinking deficit offers a double-
barreled benefit for the government – it means the Treasury will not have to sell as much debt, and could take some pressure off of the Federal Reserve to raise rates down the road.

In turn, the American consumer may not face faster rising interest rates that would make it more expensive to buy homes and cars, and American businesses can avoid higher investment costs.

The Associated Press reported the government actually ran a $106.9 billion surplus in April, courtesy of a “flood of tax payments.”

“The government typically runs a surplus during April, when individual tax returns are due and corporations make quarterly tax payments,” the AP reported.

Forbes columnist Stan Collender, a former staff member of both the House and Senate Budget Committees, said there was no celebration of a lower deficit in Washington because of politics.

“Talking about a falling deficit gives the (Obama) administration’s opponents the opportunity to say the president can’t take credit for reducing the deficit unless he first takes the blame for raising it so high,” Collender said.

“Congress didn’t gloat about the falling deficit because neither house has a good story to tell
about what it did during the time the deficit was falling.” Rather than compromise, he said both the House and Senate spent their time during the maximum deficit period by passing budgets that the other branch would not even consider.

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