WASHINGTON – The Treasury Department said Wednesday that it has scaled back its annual borrowing capacity by $232 billion since April and plans further gradual cuts in coming months.
The cuts are coming after a massive expansion of the government's borrowing over the past two years as the annual federal deficit hit $1.41 trillion last year and is forecast to hit a record of $1.47 trillion this year.
Treasury officials said that the reductions in borrowing capacity can be achieved because the improving economy is boosting tax receipts and many of the emergency programs enacted to deal with the deep recession and financial crisis are being phased out.
Officials said that since April, the cuts already made total $232 billion in reduced borrowing capacity over a 12-month period.
Those cuts projected over 12 months include $72 billion trimmed from the two-year note, $60 billion reduced from the three-year note and another $60 billion trimmed from the five-year note. In addition, projected reductions of $36 billion have been made in the seven year note and $4 billion in the 10-year note.
"Based on current fiscal forecasts, Treasury expects to continue to decrease coupon auction sizes at a gradual pace," Mary Miller, Treasury assistant secretary for financial markets, told reporters at a news conference. "The ultimate magnitude of offering size reductions will depend on the pace and extent of the economic recovery."
Matthew Rutherford, Treasury's deputy asisstant secretary for federal finance, said that through June, receipts of corporate taxes were up by more than 30 percent this budget year compared to the same period a year ago and individual tax paments are up about 5 percent, both indications of an improving economy.
Treasury on Monday announced that it trimming its estimate of the amount it will need to borrow this budget year, dropping it to $1.438 trillion.
That would still be the second highest borrowing total in history, but it will be 19.5 percent lower than last year's record borrowing of $1.786 trillion. The current budget year will end Sept. 30.
The flood of borrowing forced Congress earlier this year to boost the limit on how much Treasury could borrow to $14.29 trillion. The current amount of debt subject to the limit stands at $13.2 trillion. Miller said that Treasury expects the current debt limit to be hit sometime in the first half of next year, which will require Congress to vote to raise the limit to allow the government to keep paying its bills.
Late last month, the administration estimated that the overall budget deficit for this year will total a record $1.47 trillion. However, that projection represented an improvement from February when the administration had estimated the deficit for this year would total $1.56 trillion.
The higher borrowing has occurred as the government has spent billions of dollars in the past two years to cope with a deep recession and stabilize the financial system.
While the administration contends that all the spending prevented the country from falling into an even deeper recession, Republicans are hoping to use the soaring deficits as a campaign issue in the upcoming congressional elections.
The Treasury Department's borrowing projections were released as part of its announcement of a series of quarterly auctions it will hold over three days next week beginning on Tuesday.
Treasury said it will auction $34 billion in a three-year note on Tuesday, $24 billion in a 10-year note the following day and $16 billion in a 30-year bond on Aug. 12.