Budget Deficit in U.S. Swelled to $192.3 Billion in March

The U.S. budget deficit surged in March as the shrinking economy cut tax payments by companies and individuals and the government spent more.

The excess of spending over revenue climbed to $192.3 billion, compared with a gap of $48.2 billion in the same month a year earlier. Spending increased to $321.2 billion and revenue fell 28 percent to $129 billion.

The deficit six months into the 2009 fiscal year already exceeds the record set in the entire previous year. Rising job losses and subdued spending are cutting into tax receipts at the same time that the government commits billions of dollars to bolster the economy, now in its second year of a recession.

“A weaker labor market, slowing economy and weaker corporate profits will provide some downward pressure on the receipts side of the equation in coming months,” Maxwell Clarke, chief U.S. economist at IDEAglobal in New York, said before the report.

Economists surveyed by Bloomberg News forecast a March deficit of $165 billion, according to the median estimate of 28 projections. Projections ranged from deficits of $137.3 billion to $200 billion.

During the first half of fiscal year that began Oct. 1, the country’s deficit swelled to a record $956.8 billion, compared with a $313 billion shortfall during the same period a year earlier.

Corporate tax receipts totaled $56.2 billion through March, down from $129.5 billion in the first half of fiscal 2008, the Treasury said. Individual income tax collections are down 15 percent so far this fiscal year to $429.7 billion compared with $503.5 billion in the year-earlier period.

Projected Gap

The deficit in 2008 totaled a record $454.8 billion. The Congressional Budget Office estimated on March 20 that the gap will swell to $1.85 trillion this fiscal year.

Almost half of the $94.2 billion, or 41 percent, surge in government spending last month compared with March 2008 reflected cash infusions to Fannie Mae and Freddie Mac, the two biggest mortgage underwriters. Fannie Mae received $15.2 billion last month and Freddie Mac got $30.8 billion, the government said.

President Barack Obama in February signed into law a $787 billion stimulus program that he pledged will preserve or create 3.5 million jobs. Since then, the administration has also committed funds to help U.S. automakers and to spur investors to buy real estate assets that are clogging banks’ balance sheets.

Obama has signed a $410 spending bill to provide funding for most government operations through Sept.30.

Obama Plan

The U.S. House of Representatives and the Senate last week approved drafts of Obama’s 2010 budget that largely adhere to the administration’s priorities. The House approved a $3.55 trillion plan on April 2 that echoes Obama’s calls for revamping the health-care system, rewriting education policies and reining in global warming.

Obama said last week the U.S. needs to reduce its deficit after the economic crisis passes.

“Once we have stabilized the economy we are going to have to bring these huge deficits down,” Obama told reporters April 2 in Baden-Baden, Germany.

Obama Sees ‘Glimmers of Hope’ of Improving Economy

President Barack Obama said the U.S. economy is “starting to see progress” toward recovery even as it is “still under severe stress.”

“What we’re starting to see is glimmers of hope,” the president told reporters at the White House after getting an update on the economy from Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Timothy Geithner, and Sheila Bair, chairwoman of the Federal Deposit Insurance Corp.

While Obama cited a 20 percent increase in government- backed loans to small businesses “over the last month alone,” he added that “right now we’re still seeing a lot of job losses, a lot of hardship.”

The talks centered on stimulating the economy, stabilizing banks, reducing strain in the credit markets, the rising jobless rate, mortgage refinancing and the health assessment of banks, including “stress tests” being conducted by the Fed.

“We have always been very cautious about prognosticating, and that’s not going to change,” Obama said. “The economy’s still under severe stress, and obviously during these holidays we have to keep in mind that whatever we do ultimately has to translate into economic growth, and jobs, and rising incomes for the American people.”

Helping Homeowners

Obama told reporters he and his experts discussed stabilization in the financial system and efforts to keep people in their homes as a result of government programs to modify loans, leading to a pickup in refinancing.

The average rate on a U.S. 30-year fixed mortgage dropped to 4.73 percent in the week ended April 3, the lowest since 1971. Fed policymakers last month kept the benchmark lending rate in a range of zero to 0.25 percent.

Obama didn’t mention the status of the Fed’s tests being conducted to see how the 19 largest U.S. banks would hold up if the recession worsens. Results may be released later this month.

“We’ve still got a lot of work to do,” Obama said. He didn’t take reporters’ questions.

There are signs of economic improvement. Orders placed with factories rose 1.8 percent in February, the first gain since July. Purchases of existing homes rose 5.1 percent to an annual rate of 4.72 million in February amid lower prices.

To be sure, the recession that began in December 2007 lingers. The unemployment rate rose to 8.5 percent in March, the highest level since 1983, and employers have cut payrolls by 5.1 million workers since the start of the downturn, the worst performance in the postwar era.

The economy probably shrank at a 5 percent annual rate in the first quarter, according to the median estimate in a Bloomberg News survey earlier this month.

Top Advisers

Also attending today’s meeting were Mary Shapiro, chairwoman of the Securities and Exchange Commission; John Dugan, Comptroller of the Currency, an arm of the Treasury Department that regulates national banks; and Obama’s top economic advisers, Lawrence Summers, director of the National Economic Council, and Christina Romer, head of the White House Council of Economic Advisers.

Summers yesterday expressed confidence that the U.S. recession is nearing an end.

New York $131.8 Billion Plan Boosts Higher-Income Tax

New York Governor David Paterson and legislative leaders said they agreed on a budget that calls for higher income taxes on households with adjusted income exceeding $300,000.

New York, the third-largest U.S. state, faces a record deficit of at least $16.2 billion for the year beginning April 1, as the national economy’s contraction at an annual rate of 6.3 percent in the fourth quarter and layoffs on Wall Street cut tax collections.

The plan includes $6 billion of spending cuts, and $5.2 billion of new or increased taxes in a total budget of $131.8 billion. The overall spending plan is swollen by an additional $6.2 billion of money from the federal stimulus plan that must be spent in the current fiscal year ending March 31, according to the Division of Budget.

The agreement “closes the largest deficit in state history, stabilizes our finances and institutes critical reforms,” Paterson said in a statement issued Sunday evening.

Senate leadership has agreed to curb future property tax growth by linking increases to personal income, Senate Majority Leader Malcolm Smith said. New York has the highest taxes in the nation, if local property taxes are added to state charges on incomes and sales taxes by the state and local governments.

The budget agreement was reached yesterday after weeks of closed-door sessions between Paterson, Smith and Assembly Speaker Sheldon Silver. All three are Democrats from Manhattan.

No Republican Negotiators

It was the first budget since 1965 in which the Republican leader of the Senate wasn’t among the three top negotiators. Democrats won a 32-30 majority in the chamber in last November’s election.

The higher tax income rates are proposed to end after three years. Joint-filers with adjusted income above $300,000 would pay a top 7.85 percent, and those earning above $500,000 would pay 8.97 percent, the same top rate as neighboring New Jersey, the Division of Budget said. The possibility that a higher tax rate would lead wealthy New Yorkers to leave the state was debated in the months leading to the budget agreement.

New York’s existing top tax rate is 6.85 percent for joint filers with adjusted incomes above $40,000.

No Transit Help

Additional financial support for the Metropolitan Transportation Authority that may allow it to withdraw or reduce planned subway and commuter rail fare increases and service cuts weren’t included in the spending plan.

Spending reductions were pared with the help of a $6.2 billion funding increase from the federal government, part of the stimulus package approved earlier this year. The additional money helped restore some cuts Paterson proposed for hospitals, nursing homes and home care involved in the Medicaid health program for the poor.

State aid to schools, the largest item in the budget, will total $21.9 billion, up $405 million from this year. Schools are also expected to receive an additional $852 million of stimulus funds.

Paterson warned lawmakers that the federal money will last only two years, and if it was used in lieu of spending cuts, the state may find itself facing future budget crises.

Bill Printing

Seven of the nine bills in the budget package were printed in time that they may be voted on as soon as March 31. Paterson and lawmakers promised a budget by the April 1 start of the new fiscal year, a deadline that previous administrations often failed to meet. Before 2005, the state had 20 consecutive years of late spending, with delays sometimes lasting into August, causing problems for schools and others reliant on state aid.

Senate Majority Leader Dean Skelos of Rockville Centre, Long Island, said in the days leading up to the budget agreement that Republicans in that chamber were united in opposing higher taxes and fees because they will hurt the economy and stifle job creation.

Sunday morning, the bills were in stacks one-foot high (30.5 centimeters) on lawmakers’ desks.

In his initial budget presented in December, Paterson proposed $9.1 billion of spending cuts. That prompted a barrage of radio and television advertising by labor unions urging the reductions be restored with money from higher income taxes. A Marist College poll released earlier this month found Paterson’s approval rating at 26 percent, the lowest in the 27 years that the school has conducted opinion sampling on the state’s governors.