The US federal deficit is falling faster than economists expected. This is largely due to modest sequester cuts of $82 billion for the current fiscal year and $363 billion in new tax revenue. While it is a good thing at face value for the deficit to decrease, it should be noted that it is not happening because jobs are getting created and people are subsequently paying more in taxes.
Rather, tax increases and modest cuts are largely the source of the reduction. That said, the deficit for this year’s fiscal year is still expected to hit $642 billion which is a big change from last year’s $850 billion deficit. Economists are divided as to how beneficial this is to the economy. Some argue that the precipitous drop is a sign that government austerity is denying the private sector out of badly needed stimulus which would take the form of higher deficits. They argue that the lower deficit will see a concomitant drop in the rate of increase in the gross domestic product or GDP.
It is widely accepted that a GDP of 4% is needed to create enough jobs to begin reemploying the tens of millions of unemployed. However, the GDP for the 4th quarter of 2013 was 3.6% and this drop in the deficit is expected to lower that by as much as 1%.