Federal budget deficit hits April record
AP Economics Writer
Vail, CO Colorado
WASHINGTON – The federal budget deficit hit an all-time high for the month of April as government revenue fell sharply.
The Treasury Department said Wednesday the April deficit soared to $82.7 billion, the largest imbalance for that month on record. That was significantly higher than last year’s April deficit of $20 billion and above the $30 billion deficit private economists had anticipated.
The government normally runs surpluses in April as millions of taxpayers file their income tax returns. However, income tax payments were down this April, reflecting the impact of the recession which has pushed millions of people out of work.
Total revenues for April were down 7.9 percent from a year ago, dipping to $245.3 billion.
The Obama administration forecast in February that the deficit for this year will hit an all-time high of $1.56 trillion, surpassing the current record of $1.4 trillion set last year. Many private economists believe this year’s imbalance will be closer to the $1.4 trillion set last year and that deficits will remain high for years to come.
The trillion-dollar-plus deficits are being driven by the impact of the recession, which has cut government tax revenue while driving up spending.
Analysts estimate that roughly one-third of the increase in the deficits over the past two years came from lost revenue – the result of fewer people working and lower corporate profits. Another third is from increased government spending that normally occurs in a downturn, such as higher payments for unemployment benefits and food stamps. The final third reflects the added government spending on the $787 billion stimulus bill and the $700 billion financial bailout.
Record deficits have become a political liability for lawmakers in Washington. Many voters have expressed anger over the staggering sums of the bailout and stimulus program. Two incumbents, Sen. Bob Bennett, R-Utah, and Rep. Alan Mollohan, D-W.Va., have lost primary contests in the past week, a reflection of the wave of voter unrest.
Soaring deficits have also become a political challenge for the Obama administration. The administration is promising to aggressively attack the budget deficits once the economy is stable and unemployment falls. The president has appointed a commission that is scheduled to produce a report by year’s end on what spending cuts or higher taxes, or both, are needed to control future deficits.
The back-to-back deficits in April marked a first, according to monthly budget records that go back to 1954. During that period, the government has run April surpluses in 43 of 56 years.
Through the first seven months of the current budget year, which began on Oct. 1, the deficit totals $799.7 billion. That is down only slightly from last year’s deficit during the same period of $802.3 billion.
Revenues total $1.2 trillion in those seven months, down 4.5 percent from the same period last year. The declines reflect a drop of $39 billion in individual income taxes and Social Security payroll taxes for that period.
Outlays total $2 trillion, a drop of 3.9 percent from the same period a year ago. That decline reflected in part less spending on the financial bailout program as many banks are now paying back the support they received at the height of the financial crisis in the fall of 2008.
At the moment, the administration is projecting that next year’s budget deficit will remain above $1 trillion for a third straight year and will never fall below $706 billion for any year over the next decade. That means the government would pile up an additional $8.5 trillion in debt over that period that will have to be financed.
So far the government has been able to pay low interest rates on the borrowing because foreign investors still see U.S. Treasury securities as a haven in times of turmoil. That was apparent last week when global markets were hit by fears over an expanding debt crisis in Europe.
Officials in China, the largest foreign holder of U.S. debt, have said it will be important for the administration to put together a credible plan for getting control of future deficits.