US budget deficit widens to $2.71 trillion during August, says Treasury Department
WASHINGTON – The US budget deficit widened to $2.71 trillion as of August, the second-largest shortfall in history due to trillions of dollars in COVID relief.
The Treasury Department said in its monthly budget report on Monday that the deficit for the first 11 months of this budget year is 9.9% less than the imbalance during the same period last year.
For the entire budget year ending September 30, the Congressional Budget Office is forecasting a deficit of $3 trillion, just below last year’s record deficit of $3.13 trillion.
Last year’s deficit was more than double the previous record of $1.4 trillion set during the Obama administration in 2009, when the government was spending heavily to tackle the deep recession that followed the 2008 financial crisis.
For the first 11 months of this budget year, government revenue totaled $3.39 trillion. This marks a healthy growth of 17.7% over last year, driven by the economic rebound from the COVID-induced slowdown that allowed millions to go back to work, boosting personal income and corporate profits.
Government spending rose a slow 4% to $6.21 trillion. The outlay for both this year and last reflects the trillions of dollars spent to prevent the economy from falling into a prolonged recession by providing personal aid payments, increased unemployment benefits and billions of dollars in forgivable loans to small businesses.
For August, losses totaled $170.6 billion, down 14.7% from August 2020 when the deficit reached $200 billion. The gap resulted from the closure of several relief programs launched from March 2020.
The August deficit report is not expected to materially change those forecasts when Treasury Secretary Janet Yellen will walk out of the maneuvering room for the first time in history to default on its obligations to the government.
In a letter to congressional leaders last week, Yellen said she expects available next month to end the “extraordinary measures” used to prevent the US from hitting the government’s borrowing limit. The measures mainly include freeing up the federal employee pension fund to borrow more unless Congress either raises the current $2.84 trillion limit or suspends the limit.
The loan limit came back into effect on August 1, after being suspended for two years. The need to tackle the debt limit is tangled up in three other major pending spending decisions: the need to pass a stop-gap funding bill once the new budget year begins October 1 and two large infrastructure sleuths making their way through Congress. Acting on Bills.
Nancy Vanden Houten, an economist at Oxford Economics, said she is predicting the deficit should drop to $1.43 trillion next year, less than half of the deficit seen in the 2020 and 2021 budget years.
“We expect the costs associated with the new law to increase gradually and will be mostly offset with revenue growth and spending cuts,” she said.