U.S. budget deficit widens to record $2.1 trillion in first eight months of fiscal year

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The numbers: The U.S. federal budget deficit widened to a record $2.1 trillion in the first eight months of the fiscal year, the Treasury Department said Thursday. This is up from a $1.9 trillion deficit over the same period last year.

In May, the deficit narrowed to $132 billion, down from $399 billion in the same month of 2020 when the government rapidly increased spending to offset the pandemic.

Big picture: Outside experts say the fiscal deficit is on track to set a new record this fiscal year after last year’s record $3 trillion deficit. In light of the outlook for red-ink, the Committee for a Responsible Federal Budget, an independent budget watch dog, has called on Congress to make sure that any future legislation is paid for.

But it is unlikely that Congress will heed this advice. Only Wednesday, moderates in the House unveiled an eight-year $1.25 trillion infrastructure framework that does not include any new taxes to pay for it. Democrats remain divided over taxes while Republicans are solidly against any increase in tax rates.

Economists note that any spending passed as part of an infrastructure package will not count in this fiscal year which ends Sept. 30.

What happened: This year, federal taxes for individuals were due on May 17, two months earlier than last year.

As a result, the data this month show much higher receipts than the prior year. For the first eight months of the 2021 fiscal year, receipts were up 29% while outlays rose 20%.

In May, receipts were up 167% compared with the same month last year while outlays were up 4%.

Market reaction: The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.472%
declined Thursday even as the government reported higher consumer price inflation than expected. Experts have said the decisions Congress makes about the infrastructure bill could be market-moving.



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Written by bourbiza

Bourbiza Mohamed. Writer and Political Discourse Analysis.

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