TrimTabs’ Biderman: Dip in Budget Deficit Is a Flash in the Pan

Sunday, 19 May 2013 07:54 PM

By John Morgan

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Investors celebrating the news of a suddenly shrinking deficit should hold the champagne – it's due not to higher tax payments amid a recovering economy but to taxpayer efforts to avoid capital gains levies and other one-time factors, according to TrimTabs' founder Charles Biderman.

Biderman said the U.S. deficit is about $200 billion smaller than last year – or a 20 percent decline – thanks to a $141 billion tax-collection gain.

"Unfortunately, only a small percentage of the increase in tax collections is the result of growth in wages and salaries," he said. "The bulk of the year-over-year pop in withholding is due to higher tax rates. In other words, so far this year, wages and salaries before higher tax rates are growing minimally, particularly after inflation."

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

Improved collections also can be attributed to capital-gains taxes paid in 2013 for assets sold last year to avoid the current year's higher taxes, Biderman concluded.

Third, he said, Fannie Mae and Freddie Mac will contribute about $60 billion as they pay back some of the vast debt they owe the federal government as a legacy of the 2008 housing meltdown.

"The budget deficit has dropped by about $200 billion so far this year and maybe $30 billion of that deficit reduction is due to income growth," Biderman said on his Money blog. "Bottom line, no sign of sustainable growth that I can see."

So far in the 2013 fiscal year, federal spending is down slightly by $11 billion, but Social
Security, Medicare and Medicaid expenditures have grown by $65 billion or 8 percent.

Those three programs are equal to 43 percent of the entire U.S. budget and their growth rate is accelerating, according to Biderman.

According to the Congressional Budget Office, the U.S. budget deficit will shrink by the end of the full fiscal year to $642 billion, the smallest shortfall in five years. But the CBO acknowledged the smaller deficit estimated for 2013 is due to temporary factors, according to U.S. News & World Report.

"[T]he rosier-than-expected near-term projections do not change the fact that rising health care costs, an aging population, Social Security's looming insolvency, and ever-increasing interest payments will greatly expand the national debt as a share of the economy starting at the end of the current decade," said Maya MacGuineas, head of the Campaign to Fix the Debt, a bipartisan group that favors long-term debt reduction.

Editor's Note: The Truth About the Economy — Government Documents Lead to Eerie Conclusion

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