The U.S. government’s budget deficit narrowed in October, the first month of the new fiscal year, reflecting a calendar-related reduction in spending and an increase in tax receipts.
The $98.5 billion shortfall is smaller than the $140.4 billion deficit posted in the same month last fiscal year, according to Treasury Department data issued today in Washington. Economists projected a $102.5 billion gap, according to the median estimate in a Bloomberg News survey.
The narrowing comes as a 12-member congressional supercommittee of Democrats and Republicans tries to find $1.5 trillion in savings over the next decade before an approaching deadline triggers spending cuts. America’s budget deficit was 8.7 percent of gross domestic product in fiscal 2011, the third- highest since 1945.
The budget negotiators “keep running into this dead end” between cutting taxes and spending, John Makin, an economist at the American Enterprise Institute, said in interview Nov. 8 on Bloomberg Television. “They’re in a dilemma.”
Today’s report showed federal spending dropped 8.7 percent in October from a year earlier to $261.5 billion. Some $31 billion in recurring benefit payments that would have been made in October were instead shifted to September because Oct. 1 fell on a Saturday, Treasury said.
Without this shift in payments to the previous month, the October deficit would have been $129 billion.
Revenue increased 11.7 percent from a year earlier to $163.1 billion.
The bipartisan committee has been charged with proposing its plan by Nov. 23. Congress would then have to act on by Dec. 23 or spending cuts of $1.2 trillion would begin in fiscal 2013. Makin said negotiators could possibly find a way to “put off the deadline.”
Former Reagan administration economist Martin Feldstein said “it’s going to be very tough” to meet the deadline. Feldstein, a professor of economics at Harvard University, said in a Bloomberg Television interview, that the plan should include a cap on tax deductions to stem the budget shortfall.
Government receipts rose to 15.4 percent of gross domestic product in fiscal 2011 that ended last month, according to a Congressional Budget Office report this week. While higher, they are down from the 18 percent average of the last 40 years.
Spending by the government was 24.1 percent of GDP last fiscal year, higher than the 40-year average of 20.1 percent, the CBO said.
Last Fiscal Year
In the fiscal year ended Sept. 30, the budget deficit registered $1.3 trillion, or 8.7 percent of GDP after 9 percent in fiscal 2010, according to Treasury statistics. The budget deficit reached 10 percent of GDP in fiscal 2009, the highest since 1945, CBO said.
On Oct. 31, the Treasury raised its estimate for fourth- quarter government borrowing by $21 billion to $305 billion, reflecting in part lower revenue and higher spending.
The Treasury also projected borrowing of $541 billion from January through March 2012. That projection is the highest since the October-to-December 2008 quarter.
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