Ahead Of The Bell: Budget Deficit

WASHINGTON (AP) — January's budget deficit probably fell sharply compared to the same month last year as an improving economy lifted tax revenue and cut spending on some social programs.

But the good news won't last for long, as the budget deficit is expected to top $1 trillion this year for the fourth straight year.

On Tuesday, the Congressional Budget Office estimated that the imbalance for January was $27 billion. That's much lower than the nearly $50 billion gap in the same month a year earlier.

That would bring the total deficit for the first four months of the 2012 budget year, which began Oct. 1, to $349 billion. That would be $70 billion below the same period in the previous year.

The Treasury Department will report the official budget deficit for January at 2 p.m. Eastern time Friday. The CBO usually issues its own estimate a few days beforehand.

The deficit will likely shrink this year, compared to 2011, but the red ink will still run deep. The deficit is forecast to total nearly $1.1 trillion in budget year 2012, the CBO said last week. That would be below the previous year's $1.3 trillion gap.

The deficit has ballooned in recent years as the recession sharply cut tax revenue and boosted the government's spending on social programs, such as unemployment benefits and food stamps. President Barack Obama's $825 billion stimulus package of spending and tax cuts also inflated the gap.

January's smaller deficit partly stems from changes in the timing of some government payments, the CBO said. But the January deficit also fell because tax revenue rose $9 billion, mostly due to higher individual income taxes.

Spending, meanwhile, fell 5 percent, partly because the Education Department spent less on student loans, the CBO estimated.

Higher corporate tax receipts have boosted the government's revenue in the first four months of this budget year, the CBO said. At the same time, overall spending has dipped as fewer people are receiving unemployment benefits and Medicaid spending has also dropped.