By Martin Crutsinger, AP Economics Writer
WASHINGTON (AP) — The federal budget deficit has surged to an all-time high of $1.42 trillion as the recession caused tax revenues to plunge while the government was spending massive amounts to stabilize the financial system and jump-start the economy.
The imbalance for the budget year ended Sept. 30, more than tripled last year's record. The Obama administration projects deficits will total $9.1 trillion over the next decade unless corrective action is taken.
As a portion of the economy, the budget deficit stood at 10%, the highest since World War II, according to government data released Friday.
President Barack Obama has pledged to reduce the deficit once the Great Recession ends and the unemployment rate starts falling. But economists worry the government lacks the will to make the hard political choices to cut spending and raise taxes to get control of the imbalances.
For 2009, the government collected $2.10 trillion in revenues, a 16.6% drop from 2008. That was the largest percentage decline on records going back nearly seven decades. The plunge reflected declining income tax collections as millions of Americans lost their jobs or saw their wages cut. Corporate taxes also plummeted as the recession squeezed companies' profit margins.
Government spending last year jumped to $3.52 trillion, up 18.2% over 2008, the biggest percentage increase since a 23.4% jump in 1975, another year in which the country was struggling with a painful recession. The $700 billion financial bailout fund and increased spending and tax relief from the $787 billion economic stimulus program that Obama pushed through Congress in February drove the 2009 increase.
Republicans seized on the new figures as evidence of their contention that the Democrats in Congress and the White House are acting irresponsibly.
"Today's deficit numbers are yet another troubling reminder that our nation is on a dangerous and unsustainable fiscal path," House Republican Leader John Boehner said in a statement.
For September, a month when the government usually records surpluses, the deficit totaled $46.6 billion. That's a sharp contrast to the $45.7 billion surplus in September 2008, the last time the government's books were in the black.
In issuing the final budget figures, top administration officials said the president was determined to get control of the deficits in coming years.
"It was critical that we acted to bring the economy back from the brink earlier this year," White House budget director Peter Orszag said in a statement. "The president recognizes that we need to put the nation back on a fiscally sustainable path."
Administration officials noted that as large as the $1.42 trillion deficit was, it had been projected to be even higher. The administration forecast a $1.75 trillion deficit when Obama sent his first budget proposal to Congress in February, a figure that had been trimmed to $1.58 trillion in an administration update issued in August.
The lower figures reflected in large part the fact that spending from the $700 billion bailout package turned out to lower than originally anticipated.
Noting this fact, Treasury Secretary Timothy Geithner said, "This year's deficit is lower than we had projected earlier this year, in part because we are managing to repair the financial system at a lower cost to taxpayers."
Failure to curb runaway deficits could trigger a financial train wreck that would push interest rates and inflation higher, and send the dollar crashing if foreigners suddenly started dumping their holdings of Treasury securities.
None of those problems are evident now as the worst recession since the 1930s has depressed borrowing by consumers and businesses, giving the government a break on the interest it paid this year on the record debt. Net interest payments actually fell by about $10 billion in 2009 from 2008.
But economists worry investors will grow fearful of the nation's ability to repay all the debt unless the administration and Congress begin developing credible plans to deal with the deficit problem once the recession has ended and unemployment has begun to come down.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.