U.S. deficit shrinks in December

It falls to $260 million from 2011’s $86 billion as tax receipts rise

— The U.S. government budget deficit narrowed to its best December monthly result in five years, reflecting higher revenue, lower spending and calendar-driven shifts in some payments.

The shortfall last month shrank almost completely to $260 million from $86 billion in December 2011, according to Treasury Department data issued Friday in Washington. The gap was smaller than the $1 billion median estimate in a Bloomberg survey of economists. Through the first three months of this fiscal year, the deficit was $292 billion - 9.1 percent smaller than the same period last year, when it was $322 billion.

“We had a pretty solid month in December mostly because of quite a bit of tax-related activity that was shifted into December due to concerns over the ‘fiscal cliff’ and anticipated higher tax rates in 2013,” said Thomas Simons, a government debt economist at Jefferies Group Inc. in New York. “Going forward we are still going to run fairly substantial deficits this year and in coming years without any significant change to the spending policy.”

The U.S. had a monthly budget surplus of $48.3 billion in December 2007.

The U.S. reached its $16.4 trillion debt limit on Dec. 31. Treasury Secretary Timothy Geithner said on Dec. 26 he could create about $200 billion of “headroom” to avoid possible default with the use of extraordinary measures.

The House passed legislation averting income tax increases for most U.S. workers Jan. 1 after Republicans abandoned their effort to attach spending cuts that would have been rejected by the Senate.

The 257-167 bipartisan vote broke a year-long impasse over how to head off $600 billion in tax increases and spending cuts that had been scheduled to begin taking effect on Jan. 1.

While the measure averts most of the immediate pain, it is only a small step toward controlling the federal deficit - an issue that will return with a looming fight over raising the debt limit. Republicans are demanding deep spending cuts in return for any increase.

Senate Democratic leaders urged President Barack Obama to take any steps he can to pay U.S. financial obligations if congressional Republicans don’t support a debt-limit increase that Democrats deem acceptable.

In a letter to Obama on Friday, Senate Majority Leader Harry Reid of Nevada and three other Democratic leaders said Obama “must be willing to take any lawful steps to ensure that America does not break its promises and trigger a global economic crisis - without congressional approval, if necessary.”

White House spokesman Jay Carney told reporters Wednesday that the administration was “not going to negotiate” on the debt limit.

Friday’s Treasury report showed revenue rose 12.3 percent in December from the same month a year earlier, to $269.5 billion from $240 billion. Spending fell 17.2 percent to $269.8 billion from $325.9 billion.

Spending fell last month partly because the government provided $14 billion to the mortgage giants Fannie Mae and Freddie Mac in December 2011, after they had lost hundreds of billions from defaulted mortgages in the housing bust.

The government didn’t make any such payments last month. Fannie Mae is the Federal National Mortgage Association; Freddie Mac is the Federal Home Loan Mortgage Corp.

Estimates for December ranged from a gap of $35 billion to an even balance for the month, according to the Bloomberg survey of 22 economists.

Individual income tax receipts in the first three months of this fiscal year rose to $312.4 billion from $270.4 billion in the same period last year.

Corporate income tax receipts rose to $62.5 billion from $55.6 billion.

The Congressional Budget Office said Tuesday that December would show a budget deficit of $1 billion.

The budget office said that receipts in December 2012 were about $30 billion more than the receipts in the same month the year before.

“In both years, spending was affected by a shift of certain payments from January to December - because January 1 is a holiday - but spending this December also was affected by a shift of certain payments into November,” the budget office said.

The budget office said there was a $24 billion increase in withheld taxes last month.

“The strong growth in withheld taxes may be attributable in part to an acceleration in the payment of some compensation from calendar year 2013 to 2012 because people were anticipating higher tax rates,” the budget office said.

The government has run annual deficits for more than a decade, although Obama’s presidency has coincided with four- straight $1 trillion plus deficits.

The deficit reached a record $1.41 trillion in budget year 2009, which began four months before Obama was inaugurated. That deficit was largely because of the worst recession since the Great Depression. Tax revenue plummeted, while the government spent more on stimulus programs.

The budget gaps in 2010 and 2011 were slightly lower than the 2009 deficit as a gradually strengthening economy generated more tax revenue.

P resident George W. Bush also ran annual deficits through most of his two terms in office after he won approval for broad tax cuts and began wars in Afghanistan and Iraq.

The last time the government ran an annual surplus was in 2001.

Information for this article was contributed by Meera Louis, James Rowley, Roxana Tiron, Kathleen Hunter and Margaret Talev of Bloomberg News and by Christopher S. Rugaber of The Associated Press.

Front Section, Pages 4 on 01/12/2013

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