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U.S. Budget Gap Widened 23% in First Nine Months of Fiscal Year

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07/11/2019 | 02:16pm EDT

By Kate Davidson

WASHINGTON -- Government tax receipts rose again in June but not enough to offset higher federal spending, which pushed the U.S. budget gap to $747 billion for the first nine months of the fiscal year.

The Treasury Department said Thursday the deficit grew 23% from October through June, compared with the same period a year earlier. The government collected $2.6 trillion in receipts, a 3% increase, reflecting a substantial increase last month in corporate tax revenue, which had been running below Congressional Budget Office projections so far this year. Higher spending on the military and interest on the debt drove federal outlays up 7%, to $3.3 trillion since the start of the fiscal year, the Treasury said. Both revenues and outlays set a record for this point in the fiscal year.

A strong economy typically leads to narrower deficits, as rising household income and corporate profits help boost tax collections, while spending on safety-net programs such as unemployment insurance tends to decline.

The U.S. economy has been growing for 10 years as of this month, the longest economic expansion on record. Yet annual U.S. deficits are on track to exceed $1 trillion over the next few years, due in part to the 2017 tax law, which constrained federal revenue collection last year, and a 2018 budget deal that busted spending caps enacted in 2011.

U.S. employers added 224,000 jobs in June, a record 105th straight month of job creation, and wages rose 3.1% from a year earlier. That wage gain is near the best in a decade, though it is down from a recent peak of 3.4% in February.

U.S. economic output grew at a 3.1% seasonally adjusted annual rate in the first quarter, but forecasters predict that momentum slowed in the second quarter, amid heightened trade tensions, slower global growth and tepid business investment.

In the 12 months that ended in June, the deficit totaled $919 billion, a 22.6% increase from the same period a year earlier. As a share of gross domestic product, the year-over-year deficit totaled 4.4%, much higher than the previous 12 months.

Corporate tax revenue rebounded in June -- a month with significant estimated tax payments -- after a period when analysts were unsure why it was running below the CBO's projections. The U.S. collected $51.3 billion in corporate taxes in June, up 35% from the $38 billion it collected in June 2018. Overall, corporate tax revenue is now up 1.6% for the fiscal year to date. As of the end of May, it had been down 9% compared with the prior fiscal year.

More broadly, annual deficits are projected to more than double as a share of the economy over the coming decades, as a wave of retiring baby boomers pushes up federal spending on retirement and health-care benefits.

The latest figures come as congressional leaders and Trump administration officials are negotiating a new deal to set overall spending levels for the next fiscal year. Administration officials have cited rising deficits in their push to hold spending at current levels, though that proposal faces increasing resistance from some Senate Republicans who want to increase military spending, and runs counter to their own desire to extend certain tax cuts.

The pace of revenue collection and the resulting budget gaps are also key to discussions over raising the federal borrowing limit.

--

Richard Rubin

contributed to this article.

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