WASHINGTON (Reuters) - The U.S. budget deficit hit a record $455 billion in fiscal 2008 as a slowing economy sapped revenues while spending on wars, bank failures and unemployment-related benefits soared, the Treasury Department said on Tuesday.
The deficit for the year ended September 30 far outstripped the White House’s most recent estimate of $389 billion, made in July, and nearly tripled the previous year’s budget gap of $162 billion.
It beat the previous record of $413 billion set in fiscal 2004, which was swelled in part by tax cuts and Iraq war spending.
The Treasury’s statement did not revise the White House’s $482 billion estimate for the fiscal 2009 deficit, despite the Treasury’s commitment of potentially more than $1 trillion to backstop the country’s banking system.
Analysts say a likely recession will further shrink revenues and Democrats in Congress are discussing further spending to stimulate the economy.
“The 2008 budget deficit is only a small taste of what’s to come, in terms of federal intervention to stabilize financial markets and the economy,” said Lou Crandall, chief economist at Wrightson ICAP in Jersey City, New Jersey.
“We’re on track for another record deficit in 2009 even without another stimulus package. And I don’t think anyone would bet against another stimulus package right now,” Crandall said.
Congress passed a $168 billion economic stimulus bill earlier this year, which both reduced revenues and increased spending by providing tax rebates for individuals and tax credits for businesses.
House Speaker Nancy Pelosi said on Monday that another spending package was needed in November.
The Treasury’s plan to begin spending $250 billion to buy preferred stock in financial institutions would be treated as a cash outlay and increase the deficit, but the program and expanded Federal Reserve lending operations also could produce some revenue gains, White House deputy budget director Steve McMillin said.
He told reporters on a conference call that the budget trend would likely follow the July assumptions for a higher budget deficit in fiscal 2009 and declines after that, but actual estimates had not been revised.
“Budget projections are inherently inaccurate even six months out and if you’re projecting two, three, four, five years in the future, there is a big margin for error,” McMillin said.
Asked about analysts’ projections about 2009 deficits of $500 billion to $1 trillion and beyond, McMillin said: “I’d say the upper end of the estimate is pretty darn pessimistic.”
The fiscal 2008 budget deficit was estimated at about 3.2 percent of gross domestic product, compared with 1.2 percent of GDP in fiscal 2007. Among recent years, the deficit-to-GDP ratio had reached 3.6 percent in 2004, and 4.7 percent in 1992 as the United States dug itself out of the 1990-91 recession.
“This year’s budget results reflect the ongoing housing correction and the manifestations of that in strained capital markets and slower growth,” U.S. Treasury Secretary Henry Paulson said in a statement. “We are taking aggressive actions to stabilize our financial markets and strengthen our financial institution so they can finance growth.”
The Treasury said outlays by the Federal Deposit Insurance Corp were $18.2 billion for the year, which was $15.2 billion above its July estimate, because of the failures of IndyMac Bank in California and smaller depository institutions.
Defense Department expenditures were $595 billion, exceeding July estimates by $12.5 billion due to outlays for war-related operation and maintenance costs.
For September, normally a big surplus month because of quarterly corporate tax revenues, the Treasury reported a $45.7 billion surplus, compared with a $112.87 billion surplus in September 2007. Analysts polled by Reuters had forecast a $70 billion surplus for the month.
Additional reporting by Tabassum Zakaria, Editing by Leslie Adler; Editing by Jan Paschal