Oct. 14 (Bloomberg) — The U.S. government posted a record budget deficit for 2008 as financial market strains slowed economic growth and spending rose the most since 1990.
The shortfall widened to $455 billion in the fiscal year ended Sept. 30, compared with a $162 billion deficit a year earlier and the previous high of $413 billion in 2004, the Treasury said today in Washington. The gap was 3.2 percent of gross domestic product, up from 1.2 percent last year, the Treasury said. The 2008 deficit was the largest as a share of the economy since 2004, when it was 3.6 percent of GDP.
The excess of expenditures over receipts this year could get even worse. As the Treasury uses $700 billion to rescue the financial system from the credit crisis, Morgan Stanley chief economist David Greenlaw predicts the shortfall may almost quadruple to about $2 trillion.
“There’s no sugar-coating what the deficit is going to be,” said Joseph Brusuelas, chief economist at Merk Investments LLC in Palo Alto, California. “We’re now looking at a deficit in this fiscal year of well over $1 trillion.”
The final total for 2008 was higher than the Congressional Budget Office’s Oct. 7 projection for a year-end $438 billion deficit.
A White House official indicated the country’s budget position may deteriorate.
Treasury Secretary Henry Paulson‘s plan announced earlier today to use $250 billion to buy preferred equity in U.S. banks “will be scored as cash,” counted as an expenditure on the 2009 federal ledger, said Steve McMillin, deputy director of the White House budget office, on a conference call with reporters.
“We’re not just spending money here; were buying assets,” McMillin said. “In short, we’ve got a cash outlay,” though it’s offset by dividend receipts, he said.
In 2008, total spending rose 9.1 percent to $2.98 trillion from a year earlier, the biggest jump in annual outlays since a 9.6 percent gain in 1990. Revenue decreased 1.2 percent to $2.52 trillion, the first drop since 2003.
For the month of September, the government posted a surplus of $45.7 billion, less than half the surplus of $112.9 billion the same month a year earlier, the Treasury said.
“This year’s budget results reflect the ongoing housing correction, and the manifestations of that in strained capital markets and slower growth,” Paulson said in a statement.
Corporate income tax revenue fell 18 percent to $304.3 billion for the year, reflecting the impact of the economic slowdown on businesses.
U.S. military spending in 2008 rose 12.5 percent from the previous year to $594.7 billion, according to the report. Spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, rose 4.2 percent to $700.5 billion. Spending on Social Security totaled $657.8 billion, up 5.8 percent from the previous fiscal year.
“The bipartisan stimulus bill and the slow economy are the primary reasons for the increase in the deficit,” Jim Nussle, director of the White House’s Office of Management and Budget, said in a statement today. “This increase reinforces the need to adopt and maintain policies that promote economic growth and fiscal responsibility, including entitlement reform.”
President George W. Bush, who entered office in 2001 with a $127 billion budget surplus, saw that dwindle with a recession and the Sept. 11 attacks the same year he took office. His successor will inherit the largest fiscal deficit ever.
“The Bush administration has secured its place as the most fiscally irresponsible administration in history,” Kent Conrad, the Democrat from North Dakota who chairs the Senate Budget Committee, said in a statement.
The release of the Treasury’s budget results today was delayed until 4 p.m. from the usual time of 2 p.m. in Washington.
Last Updated: October 14, 2008 17:08 EDT
By John Brinsley and Roger Runningen