Current US budget deficit hits high of $2.54tr

Business Standard

One-liner:  The US budget deficit hit $2.54tr for the first 10 months of this budget year, as a result of spending to support the country facing a pandemic-induced recession.

Relevance: The effect of the pandemic on global economies has been profound, and even the US economy which emerged strongly from the initial effects, is showing signs of wear.

Shortfall: The figures keep the deficit on track to be the second-largest annual shortfall in US history, behind only the recent FY2020 that ended Sept 30.

In perspective: The Treasury Dept reported on Wednesday that the deficit through July is 9.5% lower than the year-ago period.

  • This reflected improving tax collections as the economy recovers, and the winding down of many of the emergency support programs enacted after the pandemic emerged in March of last year

Relief measures: The deficit for the 2020 budget year hit an all-time high of $3.1tr after Congress passed trillions of dollars in support in the form of individual stimulus payments, enhanced unemployment benefits, and support for small businesses.

Optimistic: The Congressional Budget Office is forecasting that this year's deficit will narrow slightly to $3tr. The CBO projects further improvement for the next budget year, which starts Oct 1, expecting the deficit to fall to $1.2tr.

Major bills: However, the estimate does not take into account the impact of two huge spending bills now advancing in Congress: the $1tr bill to support traditional infrastructure programs, and a $3.5tr measure that deals with issues like poverty and climate change.

Other estimates: Nancy Vanden Houten, an economist with Oxford Economics, said she is projecting a rise in the deficit this year to $3.17tr, up slightly from last year's record $3.13tr deficit.

Other significant deficits: Before last year, the largest deficit was a $1.4tr imbalance in 2009, which was a result of the govt attempting to get the country out of a deep recession following the 2008 financial crisis.

  • The govt ran deficits above $1tr for four years during that period

Predictions: The CBO is projecting that deficits over the next decade will fall below $1tr from 2023 through 2025 but then will start rising and stay above $1tr annually through the rest of the decade, hitting $1.86tr in 2031.

  • This forecast, however, does not take into account the impact of the pending spending measures being pushed by the Biden administration

Revenue: For the 10 months from Oct through July, the govt reported that its revenues totaled a record $3.32tr for the period. That was an increase of 17.5% from the same period a year ago period.

Corporate tax collection: Collection of corporate taxes were up 61% so far this year to $324bn as many companies saw rising profits as the country re-opened.

State of spending: Spending for the first 10 months of the budget year totaled a record $5.86tr, up 4% from the same period a year ago, although many categories of spending have started to decline recently as support programs wind down.

Labour department: Labour Department spending declined to $30bn in July, from $80bn in July 2020, largely due to a decline in unemployment benefits as more Americans found jobs and benefit cut-offs came into effect.

Sizing up: The deficit for July totalled $302.1bn, a record for the month and up from a deficit of $63bn in July 2020. This comparison was skewed by a delay in the tax deadline that boosted revenue from individual and corporate taxes.

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