WASHINGTON (AP) — The federal budget deficit rose to $150.4 billion last month, the largest November gap on record. And the government’s deficits are set to climb higher if Congress passes a tax-cut plan that’s estimated to cost $855 billion over two years.
The Treasury Department says November’s budget gap was 25 percent more than the deficit in November 2009.
For the first two months of the current budget year, which began Oct. 1, the deficit totals $290.8 billion. That’s 2 percent less than for the same period a year ago. And economists had been estimating that the full-year deficit would decline after two years of record highs.
But analysts say the tax deal President Barack Obama reached with Republicans this week will give the 2011 budget year the largest deficit in history — $1.5 trillion, according to economists at JPMorgan Chase. It would mark the third straight year of trillion-dollar-plus deficits.
Under the tax-cut plan, JPMorgan economist Michael Feroli said he expects a $1.5 trillion deficit this year to be followed by a $1.2 trillion gap in 2012.
Many economists had expected Congress to extend the tax cuts that were enacted in 2001 and 2003. And they had included those extensions in their deficit forecasts for coming years. But they hadn’t factored in other parts of the tax-cut plan, notably a 2 percentage-point cut in workers’ Social Security tax for next year. That will cost the government an additional $112 billion over the next year.
Before the tax-cut agreement, many economists forecast that the deficits would decline gradually in coming years. The Wall Street firms that serve as primary dealers for the government’s debt auctions estimated last month that the 2011 deficit would dip to $1.21 trillion and to $1.02 trillion in 2012.
The deficit for the 2009 budget year is the all-time high: $1.42 trillion. The second-highest is the $1.29 trillion deficit for the 2010 budget year, which ended Sept. 30.
Though it will further swell budget deficits, economists expect the tax-cut package to boost economic growth. Nariman Behravesh, chief economist at IHS Global Insight, said Friday he thinks the tax cuts would boost overall growth, as measured by the gross domestic product, to 3 percent in 2011. That’s up from IHS’ forecast before the tax deal of 2.4 percent growth.