SHRINKING DEFICITS: The trade deficit is down:

The U.S. trade deficit narrowed unexpectedly in May to $55.3 billion as exports rose slightly to a record and imports retreated a bit from the record set in April, a U.S. government report showed on Wednesday.

The smaller-than-expected trade gap suggested stronger-than-expected U.S. economic growth in the second quarter and could help persuade the Federal Reserve to remain on a path of steadily rising interest rates.

And so is the budget deficit:

Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.

The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”

The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.

Most of the increase in individual tax receipts appears to have come from higher stock market gains and the business income of relatively wealthy taxpayers.

Hmm. Weren’t people telling us just recently that the budget deficit was growing because wealthy taxpayers were paying less? Apparently they were in error.