Wednesday, April 14, 2010

Economy News: Obama team points to smaller deficit numbers

The federal deficit is running significantly lower than it did last year, with the budget gap for the first half of fiscal 2010 down 8 percent over the same period a year ago, senior Obama administration officials said Monday.

The officials attributed the results to higher tax revenue and to lower spending than projected on bailing out the financial system. If the trend continues for the rest of the year, it would mean the annual deficit would be $1.3 trillion -- about $300 billion less than the administration's projection two months ago for 2010.

But by suggesting the deficit may have peaked, administration officials are taking a political gamble. If the favorable number does not hold up in coming months and the budget shortfall surpasses the $1.4 trillion recorded last year, voters in the November midterm elections could punish the Democrats for offering false hope.

No official statement on the deficit is scheduled until the release of a late-summer review. The officials spoke on the condition of anonymity because the findings are preliminary and the results for the full year might not turn out so well.

The officials expressed cautious optimism about the figures but noted that the outlook remains uncertain. Although the economy has stabilized, growth has been lackluster. If the administration and Congress pursue a new round of measures to stimulate the economy, these could boost government spending. Officials also want to see whether the favorable trend in tax collections recorded in February and March holds up through the April tax season.

The improved budget figure comes at an opportune time for Democrats as they head into a difficult political campaign, with Republicans blaming the administration for running up record deficits.

The federal deficit was large when Obama took office, but it ballooned as the administration launched an ambitious stimulus program to soften the economic downturn, which was eating tax revenue and prompting increased spending on safety net programs. In recent days, Federal Reserve Chairman Ben S. Bernanke has added his voice to those of other prominent economic figures warning about the long-term dangers posed by large deficits.

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