US budget deficit widens rapidly, threatening debt cap

(Bloomberg) — The federal budget deficit is rising rapidly, according to the latest estimates from the Congressional Budget Office, raising the risk that the Treasury will run out of cash earlier than expected amid a debt ceiling standoff.

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Expenditures exceeded receipts by $459 billion in the first four months of the fiscal year that began Oct. 1, according to CBO estimates released Wednesday. This is $200 billion more than in the same period a year earlier.

Treasury Secretary Janet Yellen has already implemented special accounting maneuvers to extend the time before her department runs out of cash after the federal government hit the $31.4 trillion legal debt ceiling last month. In mid-January, she indicated that these maneuvers would last until at least early June.

The CBO figures show that spending is rising and revenue is weaker than last year. The Treasury received a record tax deduction in 2022, thanks in part to booming jobs and wage growth, as well as a strong rally in financial markets in 2021 that raised funds from capital gains taxes. But last year’s market debacles suggest that tax revenues from that source will now be much smaller.

The Treasury usually releases official monthly budget figures in the middle of the month, so it hasn’t released January figures yet. In the three months to December, the Treasury reported a $421 billion deficit, about 12% worse than the previous year.

Read more: US Budget Deficit Hits $421 Billion Quarter Before Debt Struggles

The department has already hinted that spending and revenue could be worse – budget-wise – than expected. Last week, the Treasury increased its projected borrowing needs for the current quarter, thanks in part to “lower receipts and higher spending forecasts” of $93 billion.

The CBO said that were it not for calendar shifts in some payments, the federal budget deficit would have been $522 billion for the October-January period, doubling the deficit a year earlier.

Republicans are likely to show a deterioration in the budget, arguing that the economic policies of the Biden administration have placed the US on an unsustainable fiscal course. The Republican Party is pushing for spending cuts in exchange for raising the debt limit. President Joe Biden rejected any conditions and said in his State of the Union address Tuesday that no administration has increased the public debt more than the administration of his Republican predecessor, Donald Trump.

Read more: House Republicans propose cuts they will return to debt limit deal

Among the reasons for the drop in earnings, the CBO noted that the Treasury no longer receives as much from the Federal Reserve, which now pays more interest to commercial banks on the reserves they hold at the Fed.

Corporate tax receipts also fell, while personal income tax refunds increased, the CBO also said. Meanwhile, spending on areas such as Social Security, Medicare and Medicaid rose in the fiscal year through January, the agency said.

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