US budget deficit rises 22pc
The US federal government started the 2013 budget year with a US$120 billion (NZ$146b) deficit, an indication that the US is on a path to its fifth straight US$1 trillion-plus deficit.
Another soaring deficit puts added pressure on President Barack Obama and Congress to seek a budget deal in the coming weeks.
The Treasury Department said Tuesday that the October deficit - the gap between the government's tax revenue and its spending - was 22 per cent higher than the same month last year.
Tax revenue increased to US$184.3b - 13 per cent greater than the same month last year. Still, spending also rose to US$304.3b, a 16.4 per cent jump. The budget year begins on October 1. Officials said last year's figures were held down by a quirk in the calendar: the first day of October fell on a Saturday, which resulted in some benefits being paid in September 2011.
The deficit, in simplest terms, is the amount of money the government has to borrow when revenues fall short of expenses. The government ran a US$1.1 trillion annual budget deficit in fiscal year that ended in September. That was lower than the previous year but still painfully high by historical standards.
Obama's presidency has coincided with four straight $1 trillion-plus deficits - the first in history and record he had to vigorously defend during his successful re-election campaign.
The size and scope of this year's deficit will largely depend on what happens with the so-called fiscal cliff - a package of tax increases and spending cuts set to take effect in January unless the White House and Congress reach a budget deal by then.
If the economy goes over the fiscal cliff, this year's deficit would shrink to US$641b, according to the Congressional Budget Office. But the CBO also warns that the economy would sink into recession in the first half of 2013.
If the White House and Congress can reach a budget deal that extends the tax cuts and avoids the spending cuts, the deficit will end up roughly US$1t for the budget year, the CBO says.
The deficits have been growing for more than a decade but reached a record US$1.41t in 2009, Obama's first year in office. That was largely because of the worst recession since the Great Depression. Tax revenue plummeted during the downturn, while the government spent more on stimulus programs.
The deficits first began to widen after President George W. Bush won approval for broad tax cuts and launched wars in Afghanistan and Iraq.
One of the biggest challenges for the federal budget is the aging of the baby boom generation. That is raising government spending on federal pension and healthcare programs such as Social Security and Medicare. At the same time, the fragile economy, along with tax cuts, has reduced government revenue.
Over the past three years, revenue has fallen below 16 per cent of the total economy as measured by the gross domestic product. Spending has exceeded 22 per cent of GDP. The government has been forced to borrow to make up the gap, which has pushed the federal debt to US$16.2t.
The government is expected to hit its borrowing limit of US$16.3t by the end of December, unless Congress votes to raise it again.