Spending worries rise with deficit

Concern about spending grew last week as the Treasury Department reported the federal government had run a deficit in the month of April for the first time since 1983.

The news came at the same time the White House raised its deficit forecast for the year by $89 billion to a total of $1.84 trillion.

April deficit

In a normal year, the federal government runs surpluses in April because of income tax payments made before the April 15 filing deadline. It had $159.3 billion in April 2008, but this April, the government was instead in the hole for $20.9 billion.

Spending up, revenue down

After a brief era of surpluses, the government began running deficits during the Bush administration as the cost of the wars in Iraq and Afghanistan came on top of tax cuts. The imbalance is now being driven higher by trillions of dollars in spending to rescue the financial system from its worst crisis since the 1930s and deal with the worst recession in decades.

The recession has also slashed tax revenues at the same time the government has had to boost outlays for benefit programs like unemployment insurance and food stamps.

Long-term worries

While Federal Reserve Chief Ben Bernanke and others say the bailout and stimulus spending is crucial, many economists are concerned that deficits will trigger increases in interest rates if investors start demanding a larger return for holding Treasury debt, the source of the borrowed money.

That hasn’t happened because the increase in the supply of Treasury securities has occurred at a time when interest rates have been pushed lower by heavy demand for what investors see as safe investments amid uncertainty.

Some economists who think the concern is overblown prefer to measure the deficit not strictly in dollars, but as a percentage of the gross domestic product —- the value of all the goods and services produced each year in the United States. By that measure, the projected deficit for this year would be 12.9 percent of the GDP, a high figure but far below the records set during World War II, when the 1943 deficit hit an all-time high of 30.3 percent.

Addressing the issue

Still, President Barack Obama has acknowledged that a growing deficit would be a threat in the long term and pledged earlier this year to cut it in half by the end of his first term. Among other measures, he calls for eliminating the Bush administration-era tax breaks for wealthier individuals and —- even more controversial —- closing tax loopholes for corporations that invest overseas.

But even the relatively tiny $17 billion in immediate spending cuts he is proposing face an uncertain future in Congress.

Sen. Ken Conrad (D-S.D.), chairman of the Budget Committee, and his Republican counterpart, Sen. Judd Gregg of New Hampshire, have proposed creating a bipartisan commission empowered to make budget-cutting recommendations.

Those proposals would then be fast-tracked to a congressional vote. But so far, their idea —- which would likely involve unpopular changes to Social Security and Medicare —- has gained no traction.

Putting on pressure

Though nearing 80, Ross Perot —- who gained folk-hero status with presidential candidacies in 1992 and 1996 focused on fighting deficits and reducing the national debt —- is once again trying to draw attention to the problem, replacing his famous charts and easel with a Web site, perotcharts.com. Among others seeking to instill a sense of urgency is the Committee for a Responsible Federal Budget, a bipartisan group whose directors include former Office of Management and Budget directors Alice Rivlin, who served during the Clinton administration, and David Stockman, who was a top adviser to President Ronald Reagan.

“The president … understands the critical importance of fiscal discipline,” the group’s policy director, Marc Goldwein, said last week. “Now we need to see some action.”

The Associated Press, the Washington Post and the New York Times contributed to this article.

Ups and downs

Budget deficits and surpluses as a proportion of gross domestic product

Projected

2014….-2.9%

2013….-2.9%

2012….-3.4%

2011….-6%

2010….-8.5%

2009….-12.9%

Actual

2008….-3.2%

2007….-1.2%

2006….-1.9%

2005….-2.6%

2004….-3.5%

2003….-3.5%

2002….-1.5%

2001….+1.3%

2000….+2.4%

1999….+1.4%

Peak years

Surplus

1948….+4.6%

Deficit

1942….-14.2%

1943….-30.3%

1944….-22.7%

1945….-21.5%

Source: U.S. Office of Management and Budget