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October 8, 2009    

US budget deficit to hit record level of $1.4tn

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by Kay Murchie
US budget deficit to hit record level of $1.4tn

The Congressional Budget Office (CBO) yesterday announced that the US budget deficit could hit a record $1.4 trillion (£877 billion) in the fiscal year to 30 September 2009.

The previous record deficit was $459 billion - set last year.

The CBO said the forecast federal deficit for the 2009 fiscal year was the highest shortfall since the aftermath of the Second World War.

The deficit is due to a severe fall in tax revenues and emergency spending by the Government (primarily due to financial help within the financial system) and the emergency stimulus package, which was introduced to drag the US economy out of a prolonged recession.

Emergency financial help was used to bail out Wall Street banks, as well as the rescue of mortgage giants Fannie Mae and Freddie Mac which cost $245 billion (£153 billion).

Furthermore, the Government’s Troubled Asset Relief Program for financial institutions made up a large part of the deficit, as well as the $787 billion economic stimulus package.

In a statement, the CBO said: “Quarterly payments of estimated individual income taxes and corporate income taxes typically result in a surplus for September; however, lower revenues and increased spending resulted in the 12th consecutive month of budget deficits.”

According to t he CBO, the deficit is the equivalent of 9.9% of gross domestic product (GDP).

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