WASHINGTON – The federal government's budget deficit grew by $50 billion in January and is expected to finish the year as the highest in history.
The Treasury Department said Thursday the deficit was one of the highest ever for the month of January, second only to the $63 billion deficit recorded two years ago. For the first four months of this budget year, the deficit totaled $418.8 billion, 2.7 percent lower than the same period a year ago.
However, this improving trend is expected to reverse in coming months. The Congressional Budget Office is projecting a record deficit of $1.5 trillion this budget year, which ends in September. The estimate was revised upward last month based on a tax-cut package brokered between the White House and Republicans that will add $400 billion to this year's red ink.
That will mark the third consecutive year that the government's deficit has been over $1 trillion, unprecedented imbalances that have been caused by the worst recession since the 1930s. That meant a sharp drop in government tax collections as millions of people lost their jobs while at the same time the government was boosting spending to stimulate the economy and stabilize the banking system.
While President Barack Obama contended that the downturn would have been much worse without all of the government spending, Republicans took control of the House in the last election and picked up seats in the Senate by vowing to attack all of the deficit spending.
Obama is facing GOP demands to slash billions from government programs as he prepares to unveil his budget for 2012 on Monday. That spending blueprint will contain a five-year freeze on many domestic government programs but GOP House members contend it is far too timid in slashing deficits. They are putting together a proposal for the current 2011 budget year that will trim spending by $32 billion, a downpayment on their pledge to roll total spending back to 2008 levels.
So far this budget year, government revenues total $758.4 billion, an increase of 9.4 percent from a year ago, reflecting significant gains in individual income tax payments as the economy added nearly 1 million jobs last year.
Spending totaled $1.18 trillion from October through January, 4.8 percent higher than a year ago, reflecting higher spending on the government's big benefit programs such as Social Security and Medicare as well as higher interest payments on the soaring national debt, which is rapidly approaching the current borrowing limit of $14.3 trillion.
In a sign of things to come, government receipts for Social Security taxes totaled $64.6 billion last month, down by $7.7 billion from the amount collected in January 2010. Those receipts will be reduced for the rest of this year because of a 2 percentage point reduction in individual Social Security taxes, part of the December tax deal.
That agreement also extended the Bush-era tax cuts and gave accelerated tax breaks to businesses to encourage them to spend more this year on new equipment as well as extending emergency unemployment benefits.