U.S. deficit now lowest since 2007

us treasury

The federal deficit for the fiscal year that just ended was the smallest in eight years. Spending was up over last year, but tax revenue rose more.

The 2015 deficit came in at $439 billion, or 2.5% of the size of the economy, according to numbers released Thursday by the Treasury Department and the White House Office of Management and Budget.

That's the lowest since 2007, when the annual deficit was $161 billion, or 1.1% of GDP.

It's also $44 billion, or 9%, lower than it was in 2014.

Money in: The federal government took in $3.25 trillion in revenue, up 8% from the year before.

Bolstered by an improving job market, the increase was due in large part to growth in individual income taxes (up nearly 11%) and payroll taxes (up 6%). Corporate taxes also rose by 7%.

Money out: Uncle Sam spent $3.69 trillion, up 5% from last year. Some of the biggest increases occurred in the areas of health and education.

But it also fell in some key areas, including defense and homeland security, transportation, agriculture and interest payments on the country's debt.

Debt rising: Lower annual deficits are a positive, given that the financial crisis that began at the end of 2008 pushed them over $1 trillion for a few years.

But the longer term picture worsens due largely to the costs associated with the retirement of the Baby Boomers.

The Congressional Budget Office has warned that deficits will start to rise again starting in 2018. And barring any policy changes, it projects the country's debt will go "up sharply relative to GDP" after 2025.

Today, the debt -- which is an accumulation of deficits over time -- stands at more than $18.1 trillion or roughly 74% of GDP.

While federal spending has been cut considerably in the past few years, it's primarily been in domestic programs that are not really responsible for the long-term trajectory of increased debt.

Independent deficit hawks have pushed for lawmakers to think longer term instead.

"We should reform our unsustainable fiscal trajectory when times are relatively good -- the task will only get harder with time," said Maya MacGuineas, who runs the bipartisan Committee for a Responsible Federal Budget.

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