By Kate Davidson
WASHINGTON -- The federal budget deficit grew 25% in the first four months of the fiscal year, as government spending continued to outpace rising federal tax receipts.
The U.S. budget gap totaled $389 billion from October through January, compared with $310 billion in the same period a year earlier, the U.S. Treasury Department said Wednesday. Federal outlays rose 10%, to $1.6 trillion, and federal tax receipts grew 6%, to $1.2 trillion -- both record highs for the four-month period.
Part of the increase in the deficit can be attributed to calendar quirks, which made the gap appear larger. Benefit payments for February were shifted to January, because Feb. 1 fell on a Saturday. If not for the shift in the timing of certain payments, the deficit would have been only 6% larger, and receipts and outlays each would have risen 7%.
Higher federal spending on the military and health care -- which rose 9% and 15%, in the first four months of the fiscal year -- continued to boost government spending, while low unemployment and sturdy economic growth have helped bolster individual and corporate tax receipts. Individual withheld taxes rose 5% from October through January, while corporate tax revenues, which have been rising since last summer, were up nearly 27%, the Treasury said.
Over the 12 months that ended in January, receipts rose 6.7%, the most since February 2016. Outlays were up 8.8%, pushing the overall deficit to $1.06 trillion, a 16.4% increase from a year earlier.
As a share of gross domestic product, year-over-year deficits were 4.9%, compared with 4.3% in the previous 12 months. That was the highest deficit/GDP ratio since May 2013. January was also the fourth month in a row that the U.S.'s year-over-year deficit topped $1 trillion.
Deficits typically narrow when the economy is strong, as rising household income and corporate profits bolsters government revenue, and spending on safety-net programs such as unemployment insurance declines. Instead, deficits have been rising in recent years amid a surge in government spending and weaker-than-expected receipts following the tax cuts enacted in 2017.
The White House budget released Monday projected deficits will narrow slightly to $966 billion in 2021 if its policy proposals are implemented, and continue to shrink until annual deficits are eliminated by 2035. But its projections are based on rosy assumptions about economic growth, and the path of revenues and spending.
The Congressional Budget Office said last month deficits are expected to exceed $1 trillion a year for at least the next decade and likely beyond, driven higher by rising costs of entitlement programs such as Medicare and Social Security as the population ages and health-care costs rise. Deficits as a share of economic output are expected to more than double.
Even those forecasts may be too low: CBO's forecasts are based on the assumption that there are no changes to current spending and tax laws. President Trump's 2021 budget proposal calls for extending the tax cuts for individuals, set to expire in 2025, and Democrats on the presidential campaign trail are advocating ambitious policy proposals -- the Green New Deal, Medicare for All -- that could cost trillions of dollars if enacted.
Write to Kate Davidson at firstname.lastname@example.org
(END) Dow Jones Newswires
February 12, 2020 14:15 ET (19:15 GMT)Copyright (c) 2020 Dow Jones & Company, Inc.