The incredible shrinking federal deficit stops shrinking

I wrote a column earlier this year about the incredible shrinking federal deficit. So it seems like I ought to mention that there are some early signs that it's about to start growing again. From Bloomberg (via Econbrowser):

Government auctions of bills, notes and bonds in the fiscal year that started this month may rise more than 50 percent to $220 billion, according to UBS Securities LLC, one of the 21 primary dealers that underwrite Treasury auctions. The first decline in corporate tax revenue since 2003 increased the shortfall by 12 percent to $162.8 billion for the year ended in September, from $144.8 billion in the 12 months through April.

With the Federal Reserve cutting interest rates to keep the economy from falling into recession and inflation slowing, an increase in net sales would mar an otherwise bullish outlook for U.S. government debt, which has returned 4.3 percent this year, Merrill Lynch & Co. index data show. Less than six months ago, Treasury officials credited a shrinking deficit for allowing them to eliminate sales of three-year notes.

"Unless the economy turns on a dime and starts to show strength again, we're going to be looking at increased Treasury issuance beginning with bills later this year and spreading out across all Treasuries beginning in the first quarter,'' said William O'Donnell, head of U.S. government bond strategy at Zurich-based UBS AG's securities unit in Stamford, Connecticut.

It's not just UBS that thinks this:

The average estimate of UBS, Barclays Capital Inc., Banc of America Securities LLC, RBS Greenwich Capital Markets Inc. and Wrightson ICAP is for the shortfall to widen to $196 billion this fiscal year. All are primary dealers, except Wrightson, a Jersey City, New Jersey-based research firm specializing in Treasury finance.

In my column back in March, I wrote that the much-bigger-than-expected increase in tax receipts between 2004 and 2006 was attributable mostly to the fact that almost all income gains were going to people in the highest tax brackets. So if revenues are starting to disappoint, does that mean income inequality is decreasing?