US government runs $120 billion October deficit

MARTIN CRUTSINGER

AP Eco­nom­ics Writer

WASHINGTON — The fed­eral gov­ern­ment started the 2013 bud­get year with a $120 bil­lion deficit in Octo­ber, an indi­ca­tion that the nation is on a path to its fifth straight $1 trillion-plus annual deficit.

A soar­ing deficit puts added pres­sure on Pres­i­dent Barack Obama and Con­gress to seek a bud­get deal in the com­ing weeks.

The Trea­sury Depart­ment said Tues­day that the Octo­ber deficit — the gap between the government’s tax rev­enue and its spend­ing — was 22 per­cent higher than the same month last year.

Tax rev­enue increased 13 per­cent from the same month last year to $184.3 bil­lion. But spend­ing rose 16.4 per­cent to $304.3 bil­lion. Spend­ing was held down last Octo­ber by a quirk in the cal­en­dar: the first day of the month fell on a Sat­ur­day, so some ben­e­fits were paid in Sep­tem­ber 2011.

The deficit, in sim­plest terms, is the amount of money the gov­ern­ment has to bor­row when rev­enues fall short of expenses. The gov­ern­ment ran a $1.1 tril­lion annual bud­get deficit in fis­cal year that ended in Sep­tem­ber. That was lower than the pre­vi­ous year but still painfully high by his­tor­i­cal standards.

Obama’s pres­i­dency has coin­cided with four straight $1 trillion-plus deficits — the first in his­tory and a record he had to vig­or­ously defend dur­ing his re-election campaign.

The size and scope of this year’s deficit will largely depend on what hap­pens with a pack­age of tax increases and spend­ing cuts set to take effect in Jan­u­ary unless the White House and Con­gress reach a bud­get deal by then.

If the econ­omy goes over the fis­cal cliff, this year’s deficit would shrink to $641 bil­lion, accord­ing to the Con­gres­sional Bud­get Office. But the CBO also warns that the econ­omy would sink into reces­sion in the first half of 2013.

If the White House and Con­gress can reach a bud­get deal that extends the tax cuts and avoids the spend­ing cuts, the deficit will end up roughly $1 tril­lion for the bud­get year, the CBO says.

The gov­ern­ment has run annual deficits for more than a decade and hit a record $1.41 tril­lion in 2009, Obama’s first year in office. That was largely because of the worst reces­sion since the Great Depres­sion. Tax rev­enue plum­meted dur­ing the down­turn, while the gov­ern­ment spent more on stim­u­lus programs.

Pres­i­dent George W. Bush also ran annual deficits through most of his two terms in office after he won approval for broad tax cuts and launched wars in Afghanistan and Iraq.

The last time the gov­ern­ment ran an annual sur­plus was in 2001.

One of the biggest chal­lenges for the fed­eral bud­get is the aging of the baby boom gen­er­a­tion. That is rais­ing gov­ern­ment spend­ing on Social Secu­rity and on Medicare and Med­ic­aid. At the same time, the frag­ile econ­omy, along with tax cuts, has reduced gov­ern­ment revenue.

Over the past three years, rev­enue has fallen below 16 per­cent of the total econ­omy as mea­sured by the gross domes­tic prod­uct. Spend­ing has exceeded 22 per­cent of GDP. The gov­ern­ment has been forced to bor­row to make up the gap, which has pushed the fed­eral debt to $16.2 trillion.

The gov­ern­ment is expected to hit its bor­row­ing limit of $16.39 tril­lion by the end of Decem­ber, unless Con­gress votes to raise it again.

Posted by AP News on Nov 13 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.