The U.S. government posted its second straight annual budget deficit in excess of $1 trillion as lingering unemployment constrained tax revenue.
The shortfall totaled $1.294 trillion in the fiscal year ended Sept. 30, second only to the $1.416 trillion deficit in 2009, the Treasury Department said today in Washington.
A jobless rate projected to exceed 9 percent through 2011 points to the difficulty of narrowing the budget gap even as the global economic recovery boosts company profits and produces more corporate tax receipts. Growth in government spending may slow because of declining costs associated with the financial crisis that spawned such rescue plans as the Troubled Asset Relief Program.
“We still have a long way to go to repair the damage to the economy and address the long-term deficits caused by the crisis,” Treasury Secretary Timothy F. Geithner said in a statement.
The Treasury Department finances the shortfall between taxes and spending with borrowing in financial markets. The national debt totals more than $13 trillion, exceeding the size of the economy, unadjusted for inflation. The government’s fiscal year runs from Oct. 1 to Sept. 30.
The Obama administration in July projected in its mid-year budget review that the deficit would be a record $1.47 trillion during the 2010 fiscal year.
While the shortfall was less than the administration had forecast, “the president thinks we still need to do a lot of hard work in order to get our fiscal house in order,” White House deputy press secretary Bill Burton told reporters today aboard Air Force One. Obama wants to make sure the U.S. “is on the right track” to reducing the deficit, he said.
In September, the budget shortfall was $34.5 billion, the second straight year of uninterrupted monthly deficits, compared with $45.2 billion in September 2009, according to the Treasury.
Economists projected a September deficit of $32 billion, according to the median of 28 forecasts in a Bloomberg News survey. Estimates ranged from shortfalls of $30 billion to $69 billion.
The non-partisan Congressional Budget Office, in a forecast issued Oct. 7, estimated the fiscal 2010 budget deficit would total $1.291 trillion.
The budget deficit and Americans’ concern about employment and the economy may usher in a change in leadership on Capitol Hill. Four of five Tea Party supporters who say they plan to vote in the November congressional elections will back Republicans, a Bloomberg National poll showed.
Eighty-five percent of these respondents say the economy will improve with Republicans in control of Congress, according to the poll conducted Oct. 7-10 by Selzer & Co. Tea Party backers, who plan to vote, put a higher priority than other voters on cutting spending and lowering taxes.
Federal spending fell 1.8 percent in fiscal 2010 to $3.456 trillion as expenditures tied to the financial crisis, such as TARP, were wound down.
Fiscal 2010 tax receipts and other revenue increased by 2.7 percent to $2.162 trillion after declines in each of the two previous fiscal years, according to the Treasury’s statistics.
Personal Income Tax
Individual income tax receipts fell 1.8 percent to $898.5 billion in fiscal 2010 with unemployment, at 9.6 percent in September, hovering near a 26-year high of 10.1 percent reached in October 2009. The recession led to the loss of more than 8 million jobs and employers have been slow to expand headcount.
The labor market remains under stress. The economy lost jobs for the fourth consecutive month in September. About 10 million workers are collecting regular, extended and emergency unemployment benefits from the government.
Corporate income tax receipts rose 38.5 percent to $191.4 billion, stemming from improved profits and tax law changes that boosted companies’ taxable profits.
In a report issued Sept. 30, the Commerce Department said that corporate profits rose 3 percent in the second quarter. Earnings increased 37 percent from a year earlier. Business spending on new equipment and software rose by the most since 1983.
Bernanke on Debt
Federal Reserve Board Chairman Ben S. Bernanke said in an Oct. 4 speech that “it is crucially important that we put U.S. fiscal policy on a sustainable path.” Speaking in Providence, Rhode Island, Bernanke said Congress should consider adopting rules that limit federal spending or debt.
“The only real question” is whether adjustments to taxes and spending will come from a “careful and deliberative process” or from a “rapid and painful response to a looming or actual fiscal crisis,” Bernanke said.
Meantime, recommendations of President Barack Obama’s debt-reduction commission are due Dec. 1.
On Sept. 30, Congress approved legislation to prevent the government from shutting down after failing to adopt a budget for the current fiscal year.
The measure, known as a continuing resolution, will keep most government programs on their current budgets after Congress reconvenes following the November elections.
Current tax rates, which were enacted in 2001 and 2003 under President George W. Bush and expire Dec. 31, are among the issues facing lawmakers upon their return to Washington. Democrats and Republicans want households earning less than $250,000 to keep current tax rates. They differ, however, on whether to raise taxes on the top 2 percent to 3 percent of American income earners.
At an Oct. 7 foreign-exchange conference in New York sponsored by Bloomberg LP, parent of Bloomberg News, former Federal Reserve Chairman Alan Greenspan called the budget gap “scary” and the federal government needs to cut spending on entitlements, such as Medicare.
“We’re involved in a dangerous game,” Greenspan said. “We’re increasing the debt held by the public at a pace that is closing” the gap between our debt and “any measure of borrowing capacity,” he said. “That cushion is growing very narrow.”