Federal budget deficit for 2010 nearly hits $1.3 trillion

Republicans have made the deficit a central campaign issue while Democrats have argued that additional stimulus spending has helped repair the nation's economy. 

A bipartisan deficit commission created by President Obama is expected to produce a report in December on ways to tackle deficit issues. 

Meanwhile, Democrats have suggested letting tax cuts expire for those in the higher income tax brackets -- individuals making at least $200,000 a year and households earning at least $250,000. 

Republicans are pushing for at least a one-year extension of all tax cuts and some Democrats have joined that call while the economy's recovery picks up pace. 

The deficit also was $261 billion or 17 percent less than the estimate in the President Obama fiscal 2011 budget submitted to Congress in February.

As a percentage of gross domestic product, the deficit fell to 8.9 percent, down from 10 percent of GDP last year. 

The deficit was smaller than expected because of lower spending on the Troubled Asset Relief Program (TARP), which had outlays of $9 billion during fiscal 2010, $25.9 billion or 74 percent below previous estimates from July.

Aid to Fannie Mae and Freddie Mac was $52.6 billion this year, $16.4 billion or 24 percent less than the most recent forecast. 

"By carefully managing the emergency initiatives to stop the financial panic and by accelerating our exit from those investments, we have significantly lowered the cost to taxpayers, bringing the costs of the financial rescue down by more than $240 billion this year," Treasury Secretary Timothy Geithner said today in a statement. 

"However, we still have a long way to go to repair the damage to the economy and address the long-term deficits caused by the crisis."