January surplus in US shrinks 2013 budget deficit

The Treasury Department said Tuesday that the government took in a surplus of US$2.9 billion in January, helped by nearly US$9 billion more in Social Security taxes. Last month Congress and the White House allowed a temporary cut in Social Security taxes to expire.

The monthly surplus was the first since September.

Through the first four months of the 2013 budget year, the deficit has grown US$290.4 billion. That's nearly US$60 billion lower than the same period a year ago.

Revenue through those four months is 12.4-percent higher compared with the same period last year, while spending has grown only 3.5 percent.

The budget year began on Oct. 1.

The Congressional Budget Office forecasts that the deficit will total US$845 billion when the budget year ends on Sept. 30. If correct, that would be first time the government has run annual deficit below US$1 trillion since 2008.

The deficit is the amount the government must borrow when its expenses exceed its revenue. Each month's deficit is volatile and can be affected by calendar quirks that shift government spending or revenue from one month to another.

The annual deficit is projected to be smaller this year because the government is collecting more revenue this year, mainly because of faster job growth and higher taxes.

At the same time, the government is spending less on some programs. That's in part because of spending cuts that were enacted under a 2011 agreement to raise the federal borrowing limit. Also, the improved economy has reduced demand for unemployment benefits and some other government programs.

Last year, the economy grew at a modest 2.2 percent and generated an average of about 180,000 jobs a month. Stronger job growth is forecast for this year — an average of more than 200,000 a month, some economists say. More jobs mean more income, which generates more tax revenue for the government.

Another factor in a smaller expected deficit is higher taxes for some Americans this year. When Congress and the White House reached a deal in January to avert the fiscal cliff, they allowed taxes to rise on individuals earning at least US$400,000 a year and couples earning US$450,000. That is expected to raise US$620 billion in revenue over the next decade.

And the agreement allowed a 2 percentage point cut in the Social Security tax to expire, thereby raising taxes on nearly everyone who earns a paycheck. This year's higher Social Security tax is projected to raise about US$10 billion more a month in revenue.

The additional revenue is likely to slow the deficit's growth for the rest of the budget year. The deficit will also likely shrink in April, when the government collects much of its income-tax revenue. Last year, the government reported a surplus of US$59 billion for April. A stronger economy could make this year's April surplus even larger.

Economists are also optimistic that this year's deficit could be smaller than US$1 trillion. But much depends on negotiations in Washington over the next few weeks. On March 1, US$85 billion in spending cuts are scheduled to take effect unless Congress and the White House reach a deal to avert them.

Cooper Howes, an economist at Barclays, said that if the full amount of reductions take place, that could trim overall economic growth by about one-half percentage point.

The CBO is projecting even smaller annual deficits of US$616 billion in 2014 and US$459 billion in 2015. But as more baby boomers retire and claim Medicare and Social Security, deficits would likely rise again. The implementation of the 2010 health care law would also widen deficits. The CBO forecasts that deficits could near US$1 trillion again by 2023.

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