The U.S. government posted a smaller budget deficit in October compared with the same month last year as an improving economy led to a pickup in tax receipts.
The deficit totaled $140.4 billion last month compared with $176.4 billion in October 2009, according to the Treasury Department’s budget statement released in Washington. In the fiscal year ended Sept. 30, the government reported its second- largest annual budget deficit on record.
While the economic recovery that started in June last year has helped generate more revenue for the Treasury, the Congressional Budget Office estimates the deficit this fiscal year will exceed $1 trillion for a third time. Cutting the budget shortfall may prove challenging with a newly elected Republican majority in the House of Representatives and President Barack Obama, a Democrat, in the White House.
“The start of a new year will not bring any relief,” Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, said before the report. “We are facing gridlock in Congress and little action will be taken in the next year to curtail federal spending enough to bring the budget deficit below $1 trillion.”
Economists forecast an October budget deficit of $140 billion, according to the median of 35 projections in a Bloomberg News survey. The Congressional Budget Office, in a forecast issued Nov. 5, also estimated a shortfall of $140 billion.
Spending for the entire government dropped 8.1 percent in October to $286.4 billion compared with a calendar-related jump in payments in the same month last year. Revenue and other income increased 7.9 percent to $146 billion, according to the Treasury’s statistics.
Department of Defense spending fell 3.5 percent from October 2009. Outlays by the Social Security Administration decreased 2.3 percent to $63.7 billion. The Department of Health and Human Services, which administers the Medicare and Medicaid programs, decreased its spending by 17 percent to $71.6 billion.
Corporate income tax receipts last month were a negative $4.4 billion. Individual income tax collections climbed 17 percent over the same period.
Debate over budget and taxes will be front and center after this month’s election shifted control of the House to the Republicans. Democrats, while losing some seats to Republicans, retained control of the Senate.
The CBO said Aug. 19 that the budget shortfall this fiscal year will be almost $1.1 trillion. The deficit will amount to 7 percent of the nation’s gross domestic product, the nonpartisan agency’s semi-annual budget report projected.
The CBO’s deficit forecasts don’t include changes in tax revenue or government spending not yet approved by Congress. Lawmakers may soon take up debate on whether to extend the tax cuts put in place in 2001 and 2003 when George W. Bush was president.
The fight over the Bush tax cuts is developing as Republicans call for reduced government spending. In Nov. 7 television appearances, Republican leaders said last fiscal year’s $1.3 trillion deficit is a sign of excessive spending, not the need for more revenue.
Obama said he is ready to negotiate on an extension of Bush-era tax cuts for high-income taxpayers. At a Nov. 3 news conference, Obama said he hoped to avoid “brinkmanship” with lawmakers. The tax policies are set to expire Dec. 31.
Congress must also work out a budget for the new fiscal year after approving legislation Sept. 30 to prevent a shutdown of federal agencies. The measure, known as a continuing resolution, has kept most government programs on their budgets for the previous fiscal year.
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