Government Posts Biggest Monthly Deficit Ever

According to the Congressional Budget Office, last month the federal government posted its largest monthly deficit ever at a shocking $223 billion.

Washington Times.com reports:

That figure tops last February’s record of $220.9 billion, and marks the 29th straight month the government has run in the red — a modern record. The last time the federal government posted even a monthly surplus was September 2008, just before the financial collapse.

Last month’s federal deficit is nearly four times as large as the spending cuts House Republicans have passed in their spending bill, and is more than 30 times the size of Senate Democrats’ opening bid of $6 billion.

Senators are slated to vote this week on those two proposals — both of which are expected to fail — and then all sides will go back to the negotiating table to try to work out a final deal.

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CBO: Tax Cut Deal to Push 2011 Federal Deficit to $1.5T

From International Business Times:

This morning the CBO (Congressional Budget Office) reported that the "compromise" that the Dems and Reps passed in the closing moments of 2010 (remember compromise in our government means when both sides get what they want), pushed the CBO's estimate of the 2011 deficit from just over $1T to $1.48T. To put this in perspective, when the economy was in near total freefall in fiscal 2009 (i.e. revenues were damaged as economic output was awful), the budget deficit was $1.42T. That INCLUDED $142B for TARP... so essentially with 6% more revenue than we had in fiscal 2009 AND without the cost of TARP, we will a significantly higher deficit. Pretty impressive work by Washington D.C.

I am chuckling as the financial infotainment TeeVee crew is clucking that this massive deficit will have the market worried. Are you kidding? As I've written countless times, the equity market loves bigger and bigger deficits because it takes from the future to give to today. The market does not worry about implications years (or even quarters) in the future. Long term is next week. Do you think the market was 'worried' when every worker was given a 2% pay raise Jan 1, 2011 via the payroll tax deduction? No, that will only spur consumption over and above what it would be. More iPads to be sold! If payroll taxes were cut to 0%, it would have celebrated even more. Who cares if the empty Social Security lockbox (already empty) became even more empty - that's a problem for another quarter, year, or decade. Same goes for any spending program - I am just using the social security payroll tax as an example. Any program (tax cut or spending increase) that draws money into the today from the tomorrow, is a reason for celebration on 'the Street'. Indeed I think the market would celebrate annual $4T deficits - can you imagine how high GDP would be? Perhaps 6%! So once more we are looking at an annual deficit of 10%ish of GDP. Even as the "recovery" rolls on.

The 2011 figure reflects 3.1% GDP for the year, which is in line with the 3-3.5% a lot of economists' project. Then in 2012 they see the deficit dropping to "only" $1.1 Trillion (again, half a decade ago $400B was a record), and then the figures drop dramatically because the CBO has to assume all the supports in the economy go away - i.e. the entire Bush tax package goes away. Fat chance. :) Hence, every projection post 2012 is useless and indeed I would not be surprised to see a package of aid to the states at some point in the next 18 months which will push up the '12 deficit as well.

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Poll: To Reduce Deficit, Most Americans say Tax the Rich More

According to a new CBS survey, given a limited set of choices the majority of Americans would prefer to see tax increases on the wealthy. Will this data have an impact on the new Speaker's goal of reducing the deficit? Only time will tell.

As many as 61 percent said they would prefer increasing taxes on the rich over three other options: cutting defense spending, cutting Medicare or cutting Social Security. Another 20 percent chose cutting defense spending as the best option. Just 4 percent said they would cut Medicare, and just 3 percent said they would cut Social Security.

Perhaps not surprisingly, those with higher incomes were less inclined to say increasing taxes on the wealthy would be the best option. Nevertheless, as many as 46 percent of Americans making more than $100,000 said it was the best option -- 26 points higher than the next-preferred option, cutting defense spending.

The poll comes as Congress considers a future vote to raise the national debt ceiling. Several Republicans are hoping to use the debt ceiling vote as leverage to pass spending cuts. Sen. Lindsey Graham (R-S.C.) on Sunday threatened to vote against raising the debt ceiling unless Social Security is reformed. He cited some means of reforming the program that have gained bipartisan support such as raising the retirement age -- a move that would cut off Social Security for a segment of the population.

In a CBS News poll released in early December, as many as 73 percent of Americans called the budget deficit a very serious problem. More than half of Americans said at the time that Congress should let the Bush-era tax cuts for the wealthy expire. However, President Obama cut a deal with Republicans to extend the tax cuts for everyone. The deal, which included other spending measures, won strong bipartisan support, even though it increases the deficit by hundreds of billions of dollars.

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Slashing $100 billion: What's first to go?

John Boehner, who will become the new Speaker of the House of Representatives, has announced that his number one priority in 2011 is to reduce spending. He's hoping to reduce spending by $100 billion from the $3 trillion federal budget.

CNN reports:

But GOP leaders say they will focus only on non-security discretionary spending, and won't slash funding for defense, Social Security or Medicare.

That makes their task a lot harder.

Cutting non-security discretionary funds by $100 billion means a 21% annual reduction in the part of the budget that includes funding for education, health and human services and housing and urban development, among other things, according to the Center on Budget and Policy Priorities, a liberal think tank.

In other words, the sacred cows of domestic Democratic policy.

Asked which programs will be cut to get to the $100 billion target, Boehner did not offer specifics.

"But I will tell you," he told reporters earlier this month. "We are going to cut spending."

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CBO Reports U.S. 2010 Deficit to Exceed $1.3 Trillion

From C-Span.org:

The Congressional Budget Office (CBO) released a report this morning that estimates that the federal budget deficit for 2010 "will exceed $1.3 trillion—$71 billion below last year’s total and $27 billion lower than the amount that CBO projected in March 2010."

CBO Director Doug Elmendorf updates reporters today on the latest federal budget and economic numbers compiled by his office. In late July, the CBO released a report warning about a looming fiscal crisis if nothing is done about U.S. debt levels.

In June, the CBO indicated that the national debt will reach 62 percent of gross domestic product (GDP) by the end of 2010. The office also reported that the debt could reach its highest percentage since the end of World War II. The causes of the increase is driven by higher federal spending and lower tax revenues in the recent economic downturn.

Jobs and Tax Bill to Cost $134 Billion

According to this new article on CNN Money.com, Congress is scheduled to consider a new bill this week that is expected to increase the federal deficit by $134 billion over the next decade.

The bill, which is likely to become a flash point in the debate over the federal debt, would raise $40 billion worth in additional revenue, according to estimates by the Congressional Budget Office and the Joint Committee on Taxation.

But that's not enough to fully offset the $174 billion in additional federal outlays that would occur as a result under the bill. CBO released its cost estimate late Friday.

The legislation would extend a host of tax breaks, give continued relief to the unemployed, delay cuts to doctors' Medicare reimbursements, provide support for job growth and fund disaster relief, among other things.

The bill, a melded version of proposal passed earlier by the House and Senate, won't be free of opposition on either side of the aisle. There is pressure to pay for more of the bill's provisions, and there is strong disagreement over some of the pay-fors that are included.

Continue reading at CNN Money.com…

Many See the VAT Option as a Cure for Deficits

From NYTimes.com:

Runaway federal deficits have thrust a politically unsavory savior into the spotlight: a nationwide tax on goods and services.

Members of Congress, like their constituents, are squeamish about such ideas, instead suggesting spending cuts or higher taxes on the rich. But with a lack of political will to do the former, and a practical ceiling to how much revenue can be milked from the latter, economists across the political spectrum say a consumption tax may be inevitable once the economy fully recovers.

“We have to start paying our bills eventually,” said Charles E. McLure, a tax economist who worked in the Reagan administration. “This strikes me as the best and most obvious way of doing it.”

The favored route of economists is known as a value-added tax, which is a tax on goods and services that is collected at every step along the production chain, from raw material to a consumer’s shopping bag. Similar to a sales tax, it generally results in consumers paying more for the things they buy. The revenues could be used to pay for health care or other social programs, or just to pay down existing debt.

Introducing such a tax would probably require an overhaul of the entire federal tax code, no small order, and something the government last did in 1986. At the time the goal was to simplify the tax system, to raise money more efficiently and with fewer headaches for taxpayers.

U.S. Already $292 Billion in the Red this Year – CBO

From Reuters.com:

The U.S. government racked up a gaping shortfall in the first two months of this fiscal year after posting a record budget deficit last year, congressional analysts said on Friday.

In October and November, the government spent $292 billion more than it took in, the nonpartisan Congressional Budget Office said. That was even worse than the same period last year, when the government was on its way to posting a record $1.4 trillion deficit for the fiscal year that ended Sept. 30.

The federal budget has been battered by the worst economic downturn since the Great Depression of the 1930s, as tax revenues have plunged and spending on safety-net programs like unemployment insurance have skyrocketed.

The budget deficit was $176.4 billion in October, according to Treasury Department records, and the CBO estimated the deficit for November will have come in at $115 billion. The CBO gave its figures in billions of dollars and said numbers may not add up to the totals because of rounding.

Receipts totaled $132 billion in November, the CBO estimated, down 9 percent from the same month last year. That was partly due to new legislation that gives increased tax write-offs to corporations.

Does Creating Jobs Mean Creating More Debt?

From NPR.org:

Despite all the attention given to Afghanistan this week, President Obama knows that most Americans' biggest concern is the lackluster economy. When new unemployment numbers come out on Friday, they're likely to show that tens of thousands of people lost jobs in November. So the White House is hosting a jobs summit Thursday to collect ideas about how to put people back to work.

The administration will get advice from big-business executives, small-business owners, economists, union leaders and the mayor of Allentown, Pa. Obama also plans to visit Allentown on Friday to kick off a "White House to Main Street" tour.

"We have some people who are really hurting," says Allentown's Mayor Ed Pawlowski. "We're going to talk about things they could do to help stimulate jobs and improve the economy, as far as loosening up lending, getting some credit into the marketplace."

Limited Resources

The administration has been trying to boost credit for small business with limited success. But the president has been hesitant about spending a lot more money to create jobs. He's caught in a political tug of war between those worried about rising unemployment and a rising federal deficit.

"There's one group that says we need to do more about the economy, more to create jobs," says political analyst Charlie Cook. "And then there's the other side that's saying we're blowing the heck out of the budget deficits. And so they're getting squeezed."

2009 Federal Deficit Surges to $1.42 Trillion

According to the Associated Press, the U.S. Treasure released figures last Friday showing that the Federal government spent $46.6 billion more in September than it took in. To make matters worse, September is historically a month where the government’s revenue exceeds their spending. These numbers brought the fiscal year’s shortfall to $1.42 trillion. For comparison, last year's deficit was only $459 billion.

"The rudderless U.S. fiscal policy is the biggest long-term risk to the U.S. economy," says Kenneth Rogoff, a Harvard professor and former chief economist for the International Monetary Fund. "As we accumulate more and more debt, we leave ourselves very vulnerable."

Forecasts of more red ink mean the federal government is heading toward spending 15 percent of its money by 2019 just to pay interest on the debt, up from 5 percent this fiscal year.

President Barack Obama has pledged to reduce the deficit once the Great Recession ends and the unemployment rate starts falling, but economists worry that the government lacks the will to make the hard political choices to get control of the imbalances.

Friday's report showed that the government paid $190 billion in interest over the last 12 months on Treasury securities sold to finance the federal debt. Experts say this tab could quadruple in a decade as the size of the government's total debt rises to $17.1 trillion by 2019.