WASHINGTON – The US budget deficit narrowed slightly in the past year as the economy recovered from the Covid-19 pandemic, falling $360 billion to $2.8 trillion, the government reported Friday.
The result for the fiscal year ended September 30 was far better than expected a few months ago, but just shy of the record set in 2020 during the worst of the health crisis that shuttered businesses nationwide and caused millions of layoffs.
The improvement reflected a more than $600 billion increase in tax revenues as the economy was able to restart following the pandemic shutdowns, according to data from the Treasury Department and White House budget office.
“Today’s joint budget statement is further evidence that America’s economy is in the midst of a recovery,” Treasury Secretary Janet Yellen said, crediting the huge American Rescue Plan stimulus package approved early this year.
Government outlays increased $266 billion to $6.8 trillion in the fiscal year just ended, partly due to ongoing spending from the massive aid bills passed in 2020, when the pandemic was at its worst.
But Yellen cautioned that “while the nation’s economic recovery is stronger than those of other wealthy nations, it is still fragile.”
President Joe Biden’s Democratic party is currently working to pass two huge legislative packages but are divided on their size and scope as well as how they will be paid for.
Yellen said passing the social and infrastructure spending proposals “will grow the economy, help workers and families and strengthen our nation’s long-term fiscal outlook.”
Meanwhile, the clock is ticking on the deadline for lawmakers to increase or suspend the federal debt limit and avert a historic default before a temporary pause expires December 3.
That day also marks the end of a temporary budget authorization that allows the government to operate while debate continues.
Yellen has said failing to act before Treasury runs out of funds to pay its expenses, including military and retiree payments, would be “catastrophic.”
Total federal borrowing in the fiscal year increased by $1.3 trillion to $22.3 trillion, nearly matching the size of the world’s largest economy which had a GDP of $22.7 trillion at the end of June.
In the breakdown of the budget totals, the report said individuals paid $2 trillion in taxes, while corporations paid $371.8 billion.
The Health and Human Services Department spent $1.5 trillion, and the Defense Department spent $718 billion, while foreign aid totaled $20 billion.