Federal Budget Deficit Set To Top $1 Trillion For The Fourth Straight Year

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Photo: The White House on flickr

WASHINGTON (AP) — The federal budget deficit is approaching $1 trillion for a fourth straight year even though the government is collecting more tax revenue than last year.The Treasury Department said Tuesday that the deficit grew by $124.6 billion in May. That put the deficit through the first eight months of the budget year at $844.5 billion, or 8.9 per cent below last year’s imbalance for the same period.

Still, the Congressional Budget office forecasts that the deficit for the entire 2012 budget year, which ends Sept. 30, will total $1.17 trillion. That’s only a slight improvement from the $1.3 trillion deficit recorded in fiscal 2011. And it is certain to keep the federal budget near the centre of the presidential campaign.

So far this year, government receipts are running 5.3 per cent higher than a year ago. A better job market and modest economic growth have led to higher tax revenue.

Receipts in May totaled $180.7 billion, the second-largest tax take for the month of May.

Rising tax collections have also helped state governments. U.S. states expect to collect higher tax revenue in the coming budget year that combined will top the collections being received before the recession, according to the findings of a survey released Tuesday by the National Governors Association and the National Association of State Budget Officers.

The extra tax revenue hasn’t cooled the budget debate in Washington.

President Barack Obama and Republicans remain at odds over how much to spend, where to cut and whether they tax increases should be on the table.

Obama submitted a budget to Congress in February that calls for $4 trillion in deficit reduction over the next decade through a combination of spending cuts and tax hikes on the wealthy.

Republicans have rejected the tax increases and want deeper cuts in government programs. The GOP-controlled House has approved a budget that calls for deep cuts in Medicare and other programs and a new round of tax cuts that would favour wealthy Americans.

The House-approved spending plan has no chance of winning approval in the Senate, where Democrats hold a slim majority. That sets the stage for gridlock until after the November elections when lawmakers will be faced with a number of end-of-the-year deadlines.

Mitt Romney, the presumptive Republican presidential nominee, has proposed broad but largely unspecified spending cuts. Romney also wants to cut taxes further.

The Bush-era tax cuts for all Americans are scheduled to expire at the end of December. In addition, a set of automatic spending cuts totaling about $1.2 trillion over 10 years are scheduled to kick in. Both parties oppose the automatic spending reductions because they include deep cuts in defence.

However, they have been unable to reach an agreement so far on alternate spending cuts or tax increases that would prevent the automatic to keep the automatic cuts from taking effect.

The government last recorded a budget surplus in 2001. Deficits returned after President George W. Bush won approval for broad tax cuts, pushed a major drug benefit program for seniors and launched wars in Afghanistan and Iraq.

The deficit grew further under Obama as the Great Recession shrank tax revenue as unemployment rose and income fell. The deficits have topped $1 trillion in each of Obama’s first three years in office.

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