Budget Deficit Shrinking; Implications for Investors and Traders

by: David Jackson

Excerpt from our One Page Annotated Wall Street Journal Summary (get it e-mailed to you every morning by signing up here):

Narrower Deficit Is Likely This Year

  • Summary: The Bush Administration said it expected the 2006 budget deficit to shrink by about 7% to $296 billion due to a tax revenue increase of 11.4% versus a spending increase of about 9%. Corporate income tax revenue is expected to rise by 20% and individual income tax by 15%. The new 2006 deficit estimate is far better than the CBO's February projection of $371 billion and the White House's estimate the same month of $423 billion. However, the deficit is expected to rise in 2007 to $339 billion as tax revenue growth slows, partly due to the elimination of the telephone excise tax which will cost $16-18 billion, and changes to the AMT. Spending will also be boosted, due to an additional $60 billion on Iraq and Afghanistan and $123 billion this year on Gulf Coast hurricane aid.
  • Comment on related stocks/ETFs: The Federal deficit is of interest to traders and investors because of its impact on interest rates and the dollar via the balance of payments. But the Federal deficit is only one factor in determing the balance of payments and aggregate US borrowing. Although this is good news, it's probably less important than China's widening trade surplus with the US.