Ahead of the Bell: US Budget Deficit

WASHINGTON (AP) -- An improving economy and higher tax rates boosted the federal government's revenue last month and likely helped produce the Treasury Department's largest monthly surplus in five years. The higher receipts have also kept this year's annual deficit on pace to be the smallest since 2008.

The nonpartisan Congressional Budget Office last week estimated that the government's surplus rose to $112 billion in April. That would make it the highest surplus since April 2008.

Another reason a surplus is expected is that April is the month when the government receives an influx of annual tax payments.

If correct, this year's deficit would be just $489 billion through the first seven months of the budget year that ends on Sept. 30. That's much lower than last year's deficit of $720 billion over the same period.

The Treasury Department will release the official figure on Friday at 2 p.m. Eastern.

The federal deficit represents simply the annual difference between the government's spending and the tax revenues it takes in. Each deficit contributes to the national debt, which recently topped $16 trillion.

Even with the April surplus, the deficit for the full year will still be quite large: the CBO expects it will reach $845 billion. That would be down from $1.1 trillion in 2012 and the first annual deficit below $1 trillion since 2008.

Tax receipts have jumped nearly 16 percent so far this year, the CBO said, to $1.6 trillion. That includes a 20 percent rise in income tax revenue and a 10.6 percent increase in Social Security tax receipts.

The increases partly reflect higher rates. Social Security taxes rose 2 percentage points Jan. 1 after a two-year cut expired. Income tax rates for the highest-earning 1 percent of the population also rose.

Accelerated dividend and bonus payments also boosted tax receipts earlier in the budget year. Many companies made special payments at the end of last year in anticipation that taxes would increase in 2013. As a result, income tax payments that weren't withheld jumped 40 percent in April compared with the same month a year ago.

But steady, if modest, economic growth has also helped. Corporate income tax receipts have increased 22 percent in the first seven months of the budget year. And Goldman Sachs has estimated that better growth has boosted tax receipts by 7 percent a year since 2009.

Spending, meanwhile, has fallen about 2 percent so far this year, according to the CBO. Much of the decline occurred in defense spending, which fell 5 percent. The government's spending on unemployment benefits fell 25 percent, as hiring has picked up. Many recipients have also likely used up all the benefits available to them.

And across-the-board government spending cuts that began on March 1 will likely lower spending in the coming months.

President Barack Obama's administration has coincided with four straight $1 trillion-plus deficits.

The deficit reached a record $1.41 trillion in budget year 2009, which began four months before Obama was inaugurated. That deficit was largely because of the worst recession since the Great Depression. Tax revenue plummeted, while the government spent more on stimulus programs.

The budget gaps in 2010 and 2011 were slightly lower than the 2009 deficit as a gradually strengthening economy generated more tax revenue.

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.

Source: http://news.yahoo.com/ahead-bell-us-budget-deficit-112118465.html

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