The U.S. government’s monthly budget returned to deficit in May after a big April surplus. But the overall imbalance so far is far smaller than it was the same period last year, putting the country on track for the lowest annual deficit in six years.
The Treasury Department said Wednesday that the May deficit totaled $130 billion after a surplus of $106.9 billion in April, a month when the government usually runs surpluses because of a flood of tax revenues.
For the first eight months of this budget year, the deficit totals $436.4 billion, down 30 percent from $626.3 billion for the same period in 2013. It was the smallest imbalance since 2008. The Congressional Budget Office is forecasting a deficit of $492 billion for the full budget year ending Sept. 30.
The government has run a deficit in May, a month when there are no major tax payments, for 59 out of the past 60 years. This year’s May deficit was slightly lower than the $138.7 billion deficit in May 2013.
The improvement this year reflects a stronger economy and labor market, which translates into more income and higher tax revenues. The government has also trimmed spending to gain control of soaring deficits in recent years.
Revenues this year totaled $1.93 trillion through May, up 7.5 percent from the same period a year ago. Government spending over this period totaled $2.37 trillion, a drop of 2.3 percent from a year ago.
In 2008, the government recorded a deficit of $458.6 billion, which was the record high at the time. But that record was soon eclipsed, as the government ran annual deficits surpassing $1 trillion for the next four years. Those deficits reflected a deep recession, which reduced tax revenue, and higher government spending in an attempt to stabilize the financial system and to pay benefits to people who had lost jobs.
After peaking at $1.4 trillion in 2009, the deficit has been falling. It dropped to $680.2 billion last year.
Over the next decade, CBO is projecting that deficits will total $7.6 trillion, $286 billion less than it projected in February. The biggest factor in the improvement is $165 billion less in projected spending on health-insurance subsidies for policies sold through exchanges created by the Affordable Care Act. Those policies are proving less costly than CBO originally thought, mainly because of tighter management of treatment options.
The CBO is forecasting that the deficit will fall to $469 billion in 2015, before rising again and topping $1 trillion annually starting in 2023. The increases will be driven by spending on the government’s major benefit programs, including Social Security and Medicare, as baby boomers retire.
Republicans have accused Obama of failing to propose significant cost-cutting measures to reduce soaring entitlement costs. Democrats counter that Republicans would rather impose sharp cuts on needed government programs than impose higher taxes on the wealthy.
Neither side is expected to make major concessions in this congressional election year. But the budget wars of the past three years have subsided, at least for a brief time. An agreement was reached in December on the broad outlines for spending over the next two years. The agreement will allow Washington to avoid the gridlock that culminated in October’s 16-day partial shutdown of the government.
The budget cease-fire also includes legislation that will suspend the government’s borrowing limit through March 15 of next year. That puts off another battle over raising the debt ceiling until a new Congress takes office in January.