US deficit continues to shrink

The US Treasury on Pennsylvania Avenue in Washington, DC.

Bolstered by a strengthening economy and job market, the U.S. budget deficit has continued to shrink, reaching its lowest level for the fiscal year to date since 2008.

The deficit declined to $366 billion for the period from October 2013 through June 2014, according to the Treasury Department. That's 28% percent lower than the deficit for the same nine months last year. The government had a small monthly surplus of $71 billion in June. 

The recovery has helped lower the deficit by bolstering tax revenues and reducing the need for social programs, says Gus Faucher, senior economist for the PNC Financial Services Group. "This is more a reflection of the improving economy than anything else." The falling deficit is also linked to the discretionary spending cuts that Congress and the White House have passed since 2011, along with a handful of tax increases.

Those cuts have concerned some policy experts who believe that such deficit-reduction measures were poorly timed and have hampered the overall pace of the recovery. At the same time, deficit hawks warn that Washington's recent budget reforms -- which barely affect entitlements or the vast majority of the tax code -- do little to change the nation's long-term deficit outlook.

"The deficit will further decline over the next couple of years as the economy continues to improve. Over the longer run there's still the issue of how to pay for the retirement of the Baby Boomers with Social Security and Medicare," says Faucher.