Tuesday, July 14, 2009

The U.S. budget deficit topped $1 trillion in June — with three months still to go in fiscal 2009.

The Treasury Department reported Monday that the budget deficit for the first nine months of fiscal 2009 totaled $1.086 trillion. The deficit for the first nine months of fiscal 2008 was $286 billion, en route to $459 billion for the full year, a nominal record that has been smashed this year.

During the first nine months of the fiscal year, the federal government borrowed more than 40 cents for each dollar it spent.

“This is the first trillion-dollar budget deficit in world history — that is $8,500 per household borrowed from our children and grandchildren,” said Brian Riedl, a budget analyst at the Heritage Foundation.

“Under the Obama budget, America would borrow $9 trillion more over the next decade. These trillion-dollar deficits will become as routine as the high interest rates, steep taxes and economic stagnation they bring,” Mr. Riedl said.

Last month’s deficit of $94 billion was the first budget shortfall in June in more than 10 years, said Douglas Elmendorf, director of the Congressional Budget Office.

The evolving deficit confirms “how serious the economic downturn is,” said James Horney of the Center on Budget and Policy Priorities. Revenues plunged and safety-net spending — from unemployment benefits to food stamps and Medicaid — increased, Mr. Horney explained. So, too, did spending to rescue the banking system and Fannie Mae and Freddie Mac, the mortgage-financing giants that were taken over by the government in September.

“Unfortunately, given the situation, the deficit is unavoidable. To reduce the deficit now would be counterproductive to the economy,” said Mr. Horney, who added that the long-term budget imbalance must be addressed.

Compared with the October-June period of fiscal 2008, during the first nine months of fiscal 2009:

• Revenues plunged $345 billion, or 17.8 percent;

• Spending soared $455 billion, or 20.5 percent;

• Defense spending increased 7.5 percent to $474 billion;

• Spending on food stamps increased 36.8 percent to $40 billion;

• Medicaid spending increased 23 percent to $186 billion;

• Unemployment benefits increased 165 percent to $77 billion;

• The Troubled Asset Relief Program, which began in October, has cost taxpayers an estimated $147 billion;

• Bailing out Fannie Mae and Freddie Mac has cost $85 billion.

Both the Obama administration and the nonpartisan Congressional Budget Office project that this year’s deficit will total about $1.84 trillion. Even adjusted for inflation, that deficit level is three times larger than any annual deficit incurred during World War II, according to budget documents.

The economy during the 1940s, of course, was much smaller than today’s. This year’s projected deficit of $1.84 trillion represents nearly 13 percent of gross domestic product. In fiscal 1943, the nominal budget deficit of $55 billion totaled more than 30 percent of GDP.

In January, before President Obama took office, the CBO estimated that the budget deficit for fiscal 2009, which was already more than three months old, would approach $1.2 trillion.

Since then, the economy deteriorated more than expected, causing revenues to plunge more steeply. In addition, the administration’s multiyear $787 billion economic-stimulus package, which was enacted in February, added $185 billion to the 2009 deficit, according to CBO estimates.

The administration’s May forecast, which will be updated later in the summer, projected a $1.26 trillion for fiscal 2010, which begins Oct. 1. That includes $399 billion in stimulus, 45 percent of which will be tax cuts, according to CBO estimates.

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