US on pace for US$1T deficit despite January dip

Sunday, February 12, 2012

WASHINGTON (AP) — The federal deficit was lower through the first four months of the budget year than the same period last year. Still, the deficit is expected to top US$1 trillion for the fourth year in a row, putting more pressure on Congress and President Barack Obama in an election year.

The deficit totalled US$349 billion through January, the Treasury Department said Friday. That's US$70 billion less than at the same point last year. January's monthly deficit was US$27 billion, roughly half of the deficit in January 2011.

The White House later confirmed a report that Obama's new budget predicts a US$1.3-trillion deficit for the full fiscal year, which began on October 1. The figures were first reported in The Wall Street Journal, which viewed leaked draft budget documents.

If the administration is correct, the 2012 deficit would be the same as last year's imbalance. The government ran an all-time record deficit of US$1.41 trillion in fiscal 2009, and a US$1.29-trillion imbalance in 2010.

This year's deficit is running lower in part because of higher corporate tax receipts, the department said. That has boosted government revenue to US$790 billion from October through January.

Spending fell to US$1.14 trillion in the same period, though excluding the accounting changes it was largely flat.

Still, the picture hasn't improved as much as the Congressional Budget Office had estimated it would last year. In August, the agency projected that the deficit would come in at US$973 billion this year. But last week, it boosted its estimate, citing lower than expected tax revenues.

Congress has shown little ability recently to make difficult changes to tax levels or spending programmes to reduce the deficit. They will face another big challenge at the end of this year, when tax cuts that were first enacted in 2001 and 2003 are set to expire. And a set of automatic spending cuts totalling about US$1.2 trillion over 10 years is also scheduled to kick in.

Those changes, along with several other provisions that will automatically take effect under current law, would substantially reduce the deficit in future years.

But the CBO estimates that if Congress extends the tax cuts, as many observers expect, and if they block the spending cuts, the deficit will remain near US$900 billion or higher for the next 10 years.

President Obama is set to release his annual budget proposal Monday. It will include a set of economic projections, including that unemployment will average 8.9 per cent this year. White House officials dismissed the figure Thursday as outdated. The rate fell to 8.3 per cent in January.