Budget Deficit Up Sharply But Lower Than Last Year's Pace

WASHINGTON -- The federal deficit likely grew sharply in February from January but stayed below last year's pace through the first five months of the budget year. Higher taxes and an improving economy are expected to keep the annual deficit below $1 trillion, the first time that has happened since President Barack Obama took office.

The Congressional Budget Office projects deficit grew by $205 billion in February. That's down $27 billion from the same month a year ago. The government recorded a small surplus of nearly $3 billion in January.

For the period October through February, the CBO projects a deficit of $495 billion. That would be $86 billion lower than the same period a year ago. The government's budget year runs from Oct. 1 to Sept. 30.

Last month, the CBO released its estimate of the deficit for the entire budget year, projecting it would total $845 billion. Even with the improvement, the government would be required to borrow 24 cents of every dollar it spends this year.

That estimate doesn't reflect the $44 billion of across-the-board spending cuts that kicked in March 1. Those cuts many reduce the deficit further. But their impact won't appear in February's total.

The monthly budget update from the Treasury Department comes as both the White House and GOP leaders in Congress are renewing their efforts to reach agreement on a broad deal to reduce the deficit. But so far, both sides are staking out familiar turf.

GOP Rep. Paul Ryan, chairman of the House Budget Committee, on Tuesday introduced a plan that would sharply cut taxes and spending in an effort to balance the budget in 10 years. President Barack Obama campaigned against Ryan's approach in 2012, when he ran against former Massachusetts Governor Mitt Romney and Ryan was the GOP vice-presidential nominee.

Obama met with Senate Democrats on Capitol Hill as part of a broader outreach effort to members of both parties. Senate Democrats plan to introduce a counterproposal to Ryan's budget on Wednesday that will include $975 billion in higher taxes, which Republicans steadfastly oppose.

The deficit is the amount the government must borrow when its expenses exceed its revenue. Each month's deficit is volatile and can be affected by calendar quirks that shift government spending or revenue from one month to another.

Modest economic growth has boosted federal tax receipts. And the Treasury Department has also issued about $20 billion less in tax refunds in January and February compared to the same two months last year. That's because the White House and Congress didn't agree on tax policy until Jan. 1.

Last year, the economy grew at a modest 2.2 percent and generated an average of about 180,000 jobs a month. Job growth has topped 200,000, however, for the past four months. More jobs mean more income, which generates more tax revenue for the government.

Another factor in a smaller expected deficit is higher taxes for some Americans this year. When Congress and the White House reached a deal in January to avert the fiscal cliff, they allowed taxes to rise on individual incomes above $400,000 a year and incomes for couples above $450,000. That is expected to raise $620 billion in revenue over the next decade.

And the agreement allowed a 2 percentage point cut in the Social Security tax to expire, thereby raising taxes on nearly everyone who earns a paycheck. This year's higher Social Security tax is projected to raise about $10 billion more a month in revenue.

Obama's presidency has coincided with four straight $1 trillion-plus deficits.

The deficits hit a record $1.41 trillion in budget year 2009, which began four months before Obama took office. That deficit was due largely to the worst recession since the Great Depression. Tax revenue plummeted. And the government spent more on stimulus programs.

The budget gaps in 2010 and 2011 were slightly lower than the 2009 deficit as a gradually strengthening economy generated more tax revenue.

President George W. Bush also ran annual deficits through most of his two terms in office after he won approval for broad tax cuts and launched wars in Afghanistan and Iraq.

The last time the government ran an annual surplus was in 2001.