Washington, Oct 17 (Inditop.com) Battling the worst recession in decades, President Barack Obama’s government ran a $1.42 trillion deficit in fiscal year 2009 making it the worst year on record since World War II.
The huge deficit was nearly a trillion dollars greater than the $455 billion deficit a year before and the largest shortfall relative to the size of the economy since 1945, data from the Treasury and the White House Office of Management and Budget (OMB) released Friday showed.
The number, while lower than forecast a few months ago, underscored the challenges ahead in shrinking the deficit even as the White House and Congress are considering more steps to stimulate an economy that is making a slow recovery, analysts said.
Tax receipts for the year fell 16.6 percent overall, while spending soared 18.2 percent compared to fiscal year 2008. The causes: rising unemployment, the economic slowdown and the extraordinary measures taken by lawmakers to stem the economic meltdown that hit in autumn 2008.
As a share of the economy, the deficit accounted for 10 percent of gross domestic product, up from 3.2 percent in 2008. As breath-taking as that may be, it’s still not in the same stratosphere as the 1945 deficit, which hit 21 percent of GDP, CNNMoney.com noted.
While tax revenue overall took a big hit, corporate receipts led the way, falling 55 percent. Individual income tax revenue fell 20 percent. At the same time spending jumped in large part because of the various economic and financial rescue measures undertaken.
The Treasury and the OMB noted that the $700 billion Troubled Asset Relief Programme and the $787 billion American Recovery and Reinvestment Act, not all of which has been used, accounted for 24 percent of the deficit total.
As a result, the country is very near to breaching its so-called debt ceiling, currently set at $12.1 trillion, CNNMoney.com said. Lawmakers, however, are expected to vote to raise that ceiling this fall.
At the end of September, America’s total debt – which is an accumulation of all annual deficits to date plus other obligations – stood at $11.9 trillion.
In August, the OMB projected a 10-year deficit of $9 trillion, assuming President Obama’s 2010 budget proposals are put in place.
In a report this week, the Government Accountability Office (GAO) noted that the deficits born from the financial crisis are not the biggest crux of the problem.
“While a lot of attention has been given to the recent fiscal deterioration, the federal government faces even larger fiscal challenges that will persist long after the return of financial stability and economic growth,” the GAO said.
The GAO further cautioned that the yawning deficit problems should be addressed sooner rather than later.
“The longer action to deal with the nation’s long-term fiscal outlook is delayed, the larger the changes will need to be, increasing the likelihood that they will be disruptive and destabilising.”
