The U.S. government’s budget deficit widened in October, the first month of the new fiscal year, as President Barack Obama and Congress seek an agreement to lower future gaps and avoid the so-called fiscal cliff.
The deficit expanded 22 percent to $120 billion from a $98.5 billion shortfall in October 2011, the Treasury Department said today in Washington. The gap exceeded the $113 billion median estimate in a Bloomberg survey of economists.
“The October miss from forecast was small relative to annual figures and the uncertainty with the fiscal cliff debate,” said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. Outlays for defense were more than expected in October, which could be due to a “spend before the cliff effect,” he said.
Obama has invited leaders in Congress for talks on a deal to reduce budget deficits that would avert the $607 billion in automatic spending cuts and tax increases slated to take effect Jan. 1. The Congressional Budget Office has forecast that the fiscal cliff would push the economy into a recession next year.
The wider October deficit was due to a shift in payment dates in the same month in 2011, which led to lower outlays in the year-ago period, the Treasury said. Lower corporate taxes also contributed to the expanded deficit last month.
“We still have fiscal policy run amok,” Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, said before the report was released. “We need to implement the fiscal policy that lowers the growth trajectory of outlays and raises the growth trajectory of revenues.”
The automatic reduction in spending including defense, paired with increases in tax rates including those on income, capital gains and dividends, would probably boost the unemployment rate to 9.1 percent in the fourth quarter of 2013, the nonpartisan CBO projected.
“By the end of this year I think at best they can agree to put things off for six months,” Martin Feldstein, a professor of economics at Harvard University, said in an interview on Bloomberg Television on Nov. 8. “There isn’t enough time, but there is time to put something in place that’s better than the fiscal cliff.”
Today’s report showed revenue increased 13 percent in October to $184.3 billion, compared with $163.1 billion in the same month a year earlier. Spending jumped 16.4 percent to $304.3 billion from $261.5 billion, the Treasury said.
Individual income tax receipts in October rose to $102 billion from $86.7 billion in the same period last year. Corporate income tax receipts fell to $1.62 billion from $2.47 billion.