Posted: Nov 13, 2012 4:50 PM
Updated: Nov 13, 2012 4:51 PM
WASHINGTON (AP) - The federal government started the 2013 budget year with a $120 billion deficit in October, an indication that the nation is on a path to its fifth straight $1 trillion-plus annual deficit.
A 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 percent higher than the same month last year.
Tax revenue increased 13 percent from the same month last year to $184.3 billion. But spending rose 16.4 percent to $304.3 billion. Spending was held down last October by a quirk in the calendar: the first day of the month fell on a Saturday, so some benefits were 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 $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 a record he had to vigorously defend during his re-election campaign.
The size and scope of this year's deficit will largely depend on what happens with 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 $641 billion, 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 $1 trillion for the budget year, the CBO says.
The government has run annual deficits for more than a decade and hit a record $1.41 trillion 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.
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.
One of the biggest challenges for the federal budget is the aging of the baby boom generation. That is raising government spending on Social Security and on Medicare and Medicaid. 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 percent of the total economy as measured by the gross domestic product. Spending has exceeded 22 percent of GDP. The government has been forced to borrow to make up the gap, which has pushed the federal debt to $16.2 trillion.
The government is expected to hit its borrowing limit of $16.39 trillion by the end of December, unless Congress votes to raise it again.
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