WASHINGTON – The U.S. federal budget deficit jumped in February from January, though it is still running well below last year’s pace. Higher taxes and an improving economy are expected to hold the annual deficit below $1 trillion for the first time since President Barack Obama took office.
The Treasury Department said Wednesday that the deficit grew in February by $203.5 billion. That followed a small surplus of $2.9 billion in January. And February’s gap was $28 billon smaller than the same month a year ago.
Through the first five months of the budget year that began on Oct. 1, the deficit is $494 billion. That’s nearly $87 billion lower than the budget gap for the same period a year ago.
The Congressional Budget Office estimates the deficit will total $845 billion for the entire year. That would be down from $1.1 trillion in the 2012 budget year and the lowest since 2008.
Even with the improvement, the government would be required to borrow 24 cents of every dollar it spends this year.
The CBO’s estimate doesn’t reflect the $44 billion of across-the-board spending cuts that kicked in March 1. Those cuts many reduce the deficit further.
Higher Social Security taxes have contributed to a smaller deficit. The tax on nearly all Americans who draw a paycheque rose 2 percentage points this year. That increased revenue in February by $8 billion. The tax increase is projected to raise about $10 billion more a month in revenue for the rest of the budget year, which ends Sept. 30.
The government is also receiving more in income taxes. As part of a deal between the White House and Congress to avoid the fiscal cliff, tax rates rose on individual incomes above $400,000 a year and incomes for couples above $450,000. That is expected to raise $620 billion in revenue over the next decade.
Individual income tax receipts rose more than $75 billion to $500.6 billion in the first five months of the budget year.
Part of the increase reflects fewer tax refunds this budget year. So far, refunds are $20 billion lower than during the same five-month period last year. The key reason: the IRS delayed processing refunds by two weeks this year because tax policy wasn’t set until the fiscal cliff was resolved on Jan. 1.
Modest economic growth has also boosted federal tax receipts. Last year, the economy grew at a modest 2.2 per cent and generated an average of about 180,000 jobs a month. Job growth has topped 200,000, however, for the past four months. More jobs mean more income, which generates more tax revenue for the government.
The monthly budget update from the Treasury Department comes as both the White House and GOP leaders in Congress are renewing their efforts to reach agreement on a broad deal to reduce the deficit. But so far, there are few signs of progress.
Obama met with House Republicans Wednesday and plans to meet Senate GOP leaders Thursday.
The deficit is the amount the government must borrow when its expenses exceed its revenue. Each month’s deficit is volatile and can be affected by calendar quirks that shift government spending or revenue from one month to another.
The deficits hit a record $1.41 trillion in budget year 2009, which began four months before Obama took office. That deficit was due largely to the worst recession since the Great Depression. Tax revenue plummeted. And 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.