Federal deficit on pace to surpass last year's $1.4 trillion record

The 2010 federal deficit is on pace to top last year's record budget shortfall of $1.4 trillion, according to a Congressional Budget Office report.

The independent budget office said Thursday the deficit for the first five months of the fiscal year, which started in October, was $655 billion, an 11 percent increase over the deficit five months into fiscal 2009.

The larger deficit so far is due almost entirely to a drop in tax revenue. The level of government spending was unchanged from last year to this year, but tax receipts went from $861 billion to $796 billion.

Individual tax receipts dropped by $53 billion due mostly to lower wages and the middle-class Making Work Pay tax credit in the stimulus championed by the Obama administration. Corporate tax revenues fell by $11 billion because of lower profits and another stimulus tax break that allowed companies to use current losses to offset taxes on past years' profits.

The government spent through February $1.45 trillion, the same amount that it spent last year over the same period. Spending on unemployment benefits nearly doubled, rising from $36 billion in the first part of 2009 to $69 billion this year, while defense and entitlement costs saw lesser increases. But the extra costs were offset by a sharp drop in bailout spending. The government has spent just $9 billion under the bank bailout, officially known as the Troubled Asset Relief Program, compared to $113 billion spent last year.

The Obama administration has forecast a deficit of $1.56 trillion this year, which would be a record in nominal dollars. That deficit would be equivalent to nearly 11 percent of the country's economy, the highest level since the post-World War II era. The White House budget predicts the deficit to fall to roughly 4 percent of the economy over the next decade as the economy recovers, federal spending on stimulus and bailouts ends and Bush-era income tax cuts expire.

To chart a path to a deficit equal to 3 percent of the economy, the level the administration considers sustainable, President Barack Obama has created a bipartisan commission of lawmakers and outside experts. Democratic congressional leaders have pledged to hold votes on the commission's recommendations after the midterm elections.

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