US deficit shrinks but still tops $1 trillion

Timothy Geithner - US Treasury Secretary

The US deficit shrank nine percent last fiscal year but still topped one trillion dollars, the government said Friday in a report seized on by Democrats’ rivals weeks ahead of mid-term elections.

For the 2010 fiscal year that ended on September 30, the government had a budget shortfall of 1.294 trillion dollars, down 122 billion dollars from the previous year’s record-setting high.

Revenue rose and spending fell amid recovery from recession and as President Barack Obama’s Democratic administration wound down some of the emergency measures taken to restore growth.

The final figures “underscored the administration’s commitment” to cutting the massive government deficit, Treasury Secretary Timothy Geithner said in a statement.

“By carefully managing the emergency initiatives to stop the financial panic and by accelerating our exit from those investments, we have significantly lowered the cost to taxpayers, bringing the costs of the financial rescue down by more than 240 billion dollars this year.”

The deficit’s ratio to economic output fell to 8.9 percent of gross domestic product, down from 10.0 percent of GDP in fiscal 2009.

But in dollar terms, the federal deficit topped one trillion dollars for the second year running.

With Democrats looking increasingly likely to lose seats in Congress in the the November 2 mid-term elections amid voter outrage about bulging deficits, Republicans pounced on the news.

“Just a few years ago, the deficit was under 500 billion dollars,” said Judd Gregg, a Republican on the Senate Budget Committee.

“Now, since the Democrat majority has taken control of the nation?s checkbook, deficits have risen to staggering levels and will average one trillion dollars annually for the next decade under the president?s policies.”

The 2009 budget deficit, at a record 1.416 trillion dollars, had set off alarms about ballooning US financial imbalances that could prove unsustainable and destabilize the global economy.

“We still have a long way to go to repair the damage to the economy and address the long-term deficits caused by the crisis,” Geithner acknowledged.

The government took in three percent more revenue in 2010 than a year ago, at 2.162 trillion dollars. It was the first time receipts had increased after two years of decline.

But it spent more than it took in, 3.456 trillion dollars, although that was two percent less than in 2009 and the fastest one-year reduction since 1984.

The still-high deficit poses a formidable challenge to reaching a sustainable recovery that does not need propping up with taxpayer money.

“We expect federal support to continue in the near term as the economic recovery progresses at a modest pace, keeping the annual deficit at an elevated, but slightly smaller, level of 1.075 trillion dollars in fiscal year 2011,” Barclays Capital analysts said in a client note.

The deficit report came as markets expect the Federal Reserve next month to resume large-scale asset purchases, pouring billion into the economy, to kick-start growth.

Judd, the Republican senator, warned that trillion-dollar deficits “cannot be allowed to become the norm, or we are on a path to fiscal collapse.

“I hope that this Congress and the next one will begin to show the political will necessary to put this country back on the right track.”

Source: AP

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