Budget Deficit in U.S. Rose to $49.8 Billion as Spending Grew

The U.S. government posted a wider budget deficit in January as spending climbed from a year earlier when outlays were depressed by the New Year’s holiday.

The gap totaled $49.8 billion last month, lower than the median forecast of economists surveyed by Bloomberg News, compared with a $42.6 billion shortfall in January 2010, figures from the Treasury Department showed today in Washington. An 11 percent increase in spending exceeded a 10 percent gain in revenue that reflected growing income tax receipts as the economy improved.

The compromise between President Barack Obama and congressional republicans that extended Bush-era tax cuts, renewed emergency jobless benefits and reduced payroll taxes may push this year’s budget shortfall to a record, surpassing the $1.4 trillion reached in 2009. Republicans, who took control of the House after last year’s election, have made spending cuts a top priority.

“It’s still a very wide budget deficit,” said Michael Moran, chief economist at Daiwa Capital Markets America Inc. in New York, who forecast a $50 billion gap. “We’re going to have a similar performance as last fiscal year. Congress needs to do something on the budget. The situation as it stands now is not sustainable.”

This year’s budget deficit is projected to reach $1.5 trillion, according to a Congressional Budget Office estimate released Jan. 26. Economists at Goldman Sachs Group Inc. in New York projected it will climb to $1.35 trillion from last year’s $1.29 trillion.

Year to Date

For the fiscal year to date, the deficit totaled $418.8 billion compared with $430.7 billion the prior fiscal year to date, according to the Treasury’s data.

“Everybody agrees the deficit is too big, but no one is willing to do anything about it -- raise taxes or cut spending, and that means draconian cuts in government entitlement plans,” such as Medicare, David Wyss, chief economist at Standard & Poor’s in New York, said before the report.

A survey of 29 economists by Bloomberg News showed a median estimate for the deficit of $56.2 billion in January. Forecasts ranged from $44.1 billion to $70 billion.

The non-partisan CBO, in a forecast issued Feb. 7, estimated a January gap of $53 billion.

More Spending

The Treasury’s report showed that government spending rose to $276.3 billion in January from $247.9 billion a year ago, when the New Year’s holiday fell on a Friday, pushing more government payments into December 2009, the CBO said in its forecast. “If the effects of shifts in the timing of certain payments were excluded, the deficit would be $16 billion less in January 2011 than it was in January 2010,” according to the CBO’s estimate.

Revenue and other fees increased to $226.6 billion from $205.2 billion in January 2010. Receipts from individual income taxes have climbed 24 percent year to date to $385 billion. Corporate income tax receipts were up 6.5 percent year over year.

Treasury Secretary Timothy F. Geithner, at a town hall event in Washington yesterday, said the Obama administration soon will release “very detailed” programs for curbing future deficits, and that the fiscal outlook is “fundamentally manageable.” He also predicted that Congress would raise the $14.29 trillion debt limit.

Obama on Tax Code

Obama this week called for businesses to join him in an effort to change a “burdensome corporate tax code.” In a speech at the U.S. Chamber of Commerce on Feb. 7, Obama said “various loopholes and carve-outs” distort economic decisions.

In an effort to help contain spending, a bipartisan group of senators has revived a proposal to give the president a form of the line-item veto enjoyed by many state governors. In 1996, Congress approved the full line-item veto and then-President Bill Clinton used it until it was declared unconstitutional two years later.

“I think the mood has changed,” said Senator Rob Portman, an Ohio Republican who was President George W. Bush’s budget director. “The legislative line-item veto is an important tool in our toolbox to rebuild our fiscal house.”

Meantime, former Senator Alan Simpson, co-chairman of a White House panel budget reform, said Social Security, Medicare, Medicaid and the pentagon need reining in, the Wyoming Republican said Feb 6.

To contact the reporter on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at

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