US Deficit Over $1 Trillion Again

Published by: Dave Simmons on 15th Oct 2010 | View all blogs by Dave Simmons
US Deficit Over $1 Trillion Again

The federal government announced Friday that the US deficit for fiscal year 2010 is $1.29 trillion. While the number is staggering, it's not quite as high as the $1.42 trillion deficit the nation incurred in 2009, the largest, in terms of percentage of the economy, on records dating back to 1945.  In terms of actual dollars, the 2009 deficit was the largest in the nation's history.

The deficit for fiscal year 2010, which ended September 30th, represented 8.9 percent of the overall economy.  By comparison, at the height of World War II in 1943, the deficit represented 30.3 percent of the economy.  The narrow decline in the deficit in 2010 can mainly be attributed to a 2.7 percent increase in tax receipts and a 1.8 percent decline in spending.

Corporate tax revenue rose in 2010 as well as receipts from the Federal Reserve, which turned profits on its investments in housing and other sectors of the economy.  IN fact, payments to the Treasury for the year were up 122 percent.  Individual income and payroll tax receipts, however, were down thanks to the continued high rate of unemployment.

Overall government spending was down mainly because of cuts in the cost of the Troubled Asset Relief Program, which just ended, as well as lower payments to mortgage giants Fannie Mae and Freddie Mac.  Funds spent on federal deposit insurance were also lower.  Excluding those programs, spending increased 5.5 percent, mainly due to increased outlays on Social Security, Medicare, Medicaid, and unemployment benefits.  Of those three, unemployment costs increased the most, 29 percent.

The federal government shelled out a whopping $414 billion in fiscal 2010 in interest accrued on existing debt accumulated over the years.  Thanks to interest rates remaining low, however, that's only an eight percent increase on interest paid on the debt in fiscal 2009, despite the fact that the cumulative debt grew by 20 percent from 2009 to 2010.

There has been a substantial amount of political outcry over the the annual deficits of both 2009 and 2010, and the issue is likely to be a key topic of debate during the upcoming midterm elections. Fiscal experts point out, though, that the unusually large deficits incurred in the wake of the recession are not the primary source of the nation's biggest problems.

The biggest source of fiscal concern is the so called structural deficit, which mostly entails spending on the big three entitlement programs. That structural deficit will continue to grow faster than the economy long after the recession is just a memory. In fact, the Government Accountability Office has projected that by 2020, the vast majority of all federal tax revenue will be swallowed up by just four expenses: interest on the national debt, Medicare, Medicaid, and Social Security.  The President has appointed a bipartisan fiscal commission to recommend ways we can get the deficit under control, and they will issue a report in December.

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