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News : International Last Updated: Oct 9, 2009 - 7:24:14 AM


US budget deficit hit a record $1.4 trillion in year to September 2009; Deficit was more than treble 2008 level at 9.9% of GDP - - the highest peacetime level since 1920
By Finfacts Team
Oct 8, 2009 - 12:54:06 PM

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The US budget deficit hit a record $1.4 trillion in the year to September 30, 2009, US Congress estimates say. The deficit was more than treble the 2008 level and equivalent to 9.9% of gross domestic product (GDP) - - and the highest peacetime level since 1920.

Analysts had forecast a $1.6tn deficit but revised the estimate, which comes after the end of the US financial year.

The rising deficit was attributed to increased government spending and a big dip in tax revenues.

The Treasury Department will report the actual deficit later this month.

The previous record deficit was $459bn, set last year.

The non-partisan Congressional Budget Office (CBO) said the increased spending was due in large part to the government's Troubled Asset Relief Program (TARP) for financial firms, the $787bn Obama economic stimulus passed by Congress last February and the rescue of Federal sponsored mortgage guarantee giants Fannie Mae and Freddie Mac.

Total revenues in 2009 were about 15% of GDP, the lowest level in over 50 years. Conversely, outlays increased by over $530 billion (or 18%) in 2009, to nearly 25% of GDP, the highest level in over 50 years.

The CBO said excluding the effects of the Obama stimulus spending for unemployment benefits more than doubled in 2009, because of rising unemployment and benefit increases. Spending for Medicare rose by 10%; outlays for Medicaid and Social Security benefits grew by 9%. Defense spending increased by 7% in 2009, CBO estimates, lower than the average growth rate of over 9% during the past decade.

Individual income taxes, the largest source of tax receipts, account for over half of the total drop in receipts, declining by $230 billion (or 20%). Corporate tax receipts fell for the second consecutive year, decreasing by about $166 billion (or 54%). Receipts of social insurance taxes fell by about $9 billion (or 1%). The decrease in individual income and social insurance taxes is the result of declines both in withholding for individual income and payroll taxes and in payments made directly by individuals. Withholding began to fall markedly in December, with the weakening economy and low year-end bonuses and fell further as a result of tax reductions in the stimulus program.

The US national debt is almost $12 trillion for a $14 trillion economy.

The debt increased from $5.7tn to $10.7tn during the presidency of George W. Bush.

During the Clinton presidency, the debt increased from $4.2tn to $5.7tn. 

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