WASHINGTON — America’s federal deficit through the first four months of the budget year is running at a record-breaking pace even though the deficit in January was slightly smaller than expected.
The massive tide of red ink reflects the continued fallout from a deep recession and a severe financial crisis. It highlights the formidable challenges President Barack Obama will face in trying to get the deficit down to more manageable levels.
The Treasury Department said Wednesday that the deficit for January totaled $42.63 billion. That left the total of red ink so far this budget year at $430.69 billion, 8.8 percent higher than last year when the deficit soared to an unprecedented level of $1.42 trillion.
Obama, in sending Congress a new budget plan on Feb. 1, projected that this year’s deficit would hit $1.56 trillion and would remain above $1 trillion for three consecutive years. He forecast the 2011 deficit, for the budget year that begins next Oct. 1, would total $1.27 trillion.
The administration on Wednesday marked the anniversary of the passage of the $787 billion economic stimulus bill, maintaining that it has worked to stave off a second Great Depression while acknowledging that more must be done to put people back to work.
While Republican critics have attacked the stimulus spending as ineffective, Obama said it had kept up to 2 million people on the job and the government needed to do even more to fight an unemployment rate that currently stands at 9.7 percent.
However, the administration contends that it will begin to tackle the deficit problem beginning in 2011. In his budget, he offered a down-payment on deficit reduction,a three-year freeze on discretionary government spending outside of defense and homeland security.
Obama on Thursday plans to announce creation of a deficit panel headed by Erskine Bowles, a former White House chief of staff in the Clinton administration, and former Sen. Alan Simpson, a Wyoming Republican.
The commission will be charged with reporting back by the end of this year on what steps Congress and the administration should take to get the deficit down to a level of 3 percent of the overall economy, a point that economists believe is manageable. Last year’s deficit equaled 9.9 percent of GDP, the highest point since World War II, and would climb to 10.6 percent of GDP this year.
The $42.63 billion deficit for January was down from a $63.46 billion deficit in January 2009 and was below the $47 billion forecast of private economists.
But the January imbalance still marked a record 16th straight month that the government’s books have been in the red, going back to October 2008.
Through the first four months of the current budget year, outlays total $1.12 trillion, down 3.9 percent from the spending through the same period in 2009. But revenues, hurt by the lingering impact of the recession on tax receipts, were down even more, falling 10.4 percent to $693.02 trillion for the period from October through January.
The huge deficits are being caused by the impact of a severe recession, which has trimmed the government’s tax receipts and raised spending on such programs as unemployment insurance and food stamps. The deficits also reflect the billions of dollars being spent from the $787 billion stimulus program passed in February 2009 and the $700 billion financial bailout program Congress passed in October 2008 to stabilize the banking system.