Turning the corner or U-Turn?

Budget deficit hits record $395.8B

Treasury says July deficit was bigger than expected; final 2004 gap could set a new record.
August 11, 2004: 4:10 PM EDT

WASHINGTON (Reuters) - The U.S. federal government ran a larger-than-expected budget deficit in July, bringing the year-to-date shortfall between receipts and spending to a record of nearly $400 billion, the Treasury Department said Wednesday.

In its monthly budget report, the Treasury said the July deficit was $69.16 billion, based on revenues of $134.42 billion and spending of $203.58 billion. That was above the $61 billion shortfall Wall Street economists had expected and wider than July 2003's $54.24 billion deficit.

With only August and September left in the 2004 federal budget year, the red ink through the first 10 months totaled $395.8 billion. That's ahead of the revised record budget gap in 2003 of $374.27 billion.

The final 2004 gap is widely expected to set a new record topping $400 billion. In its recent budget review, the Office of Management and Budget said it expects the deficit to be about $445 billion this year, while the Congressional Budget Office has projected a more conservative $422 billion.

While those estimates are lower than ones made at the beginning of the year, they have not insulated the White House from political attacks by Democrats.

Democrats have placed much of the blame for the return to annual deficits -- after surpluses seen from 1998 through 2001 -- on the Bush administration's tax cuts.

The gap has also helped prompt the administration to call, early this month, for an increase in the federal borrowing limit for the third time in four years. Without a hike, Treasury Secretary John Snow warned in a letter to Capitol Hill leaders, the government could run out of financing means in mid- to late-November. That could set the stage for a partisan struggle over raising the ceiling this fall.

Through July, the government had raised $1.535 trillion in revenues, up 4.0 percent from the same period in 2003. Spending, driven by a hefty gain in defense outlays, rose at a faster 7.2 percent clip, to $1.930 trillion through July.

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