The U.S. ran a much smaller budget deficit in October at the start of the new fiscal year, reflecting lower spending on unemployment benefits and other stimulus adopted earlier in the pandemic.
The deficit shrank 42% to $165 billion from $284 billion in the same month of 2020, the Treasury Department said Wednesday. The federal government’s fiscal year began on Oct. 1.
In October, tax revenue increased 19% to $284 billion from a year earlier. Tax revenues have bounced back strongly due to a robust economic recovery and high business profits.
Government spending declined 14% to $449 billion from a year earlier.
Last year, the U.S. racked up its second largest deficit ever at $2.8 trillion. In fiscal 2020, the budget gap had soared to a record $3.1 trillion.
Washington spent trillions in the past two years on stimulus checks for families, more generous unemployment benefits and grants to struggling businesses in an effort to stave off a deep and prolonged recession.
While the strategy appears to have worked, it’s also helped spawn the biggest increase in inflation in almost 31 years by stoking high demand. Businesses can’t produce enough goods and services to satisfy the needs of their customers.
The deficit could fall sharply this year, but it depends on whether Congress passes the Biden administration’s so-called Build Back Better plan that could add up to several trillion dollars in spending in the next decade.
Last week, Washington approved a new $1 trillion spending plan for infrastructure such as roads, bridges and broadband.
High budget deficits are expected to persist for at least several years given the current trajectory of spending and tax receipts.