Deficit tops $1 trillion for the second year in a row

The federal budget deficit will surpass $1 trillion for the second year in a row, the Treasury Department and Office of Management and Budget said Friday.

The deficit for fiscal 2010 came in at $1.29 trillion, which was $122 billion (9 percent) lower than in the previous year. The figure is $177 billion (12 percent) lower than OMB estimated in July.

Although lower than expected, the fiscal 2010 deficit showed the effects of the severe economic recession, high unemployment, and the financial crisis, the agencies said in their release--which pointedly noted that the administration had inherited those conditions

The final look at fiscal 2010, which ended September 30, comes after the Congressional Budget Office last week pegged its figure, using slightly different accounting methods, at about $1.3 trillion, or 8.9 percent of the gross domestic product. That is the second-highest shortfall as a share of the economy since 1945. The largest shortfall was 10 percent of gross domestic product in fiscal 2009, when the deficit reached $1.4 trillion.

Treasury and OMB attributed the decline from previous projections to "careful stewardship" of the costly emergency programs that were instituted to help the economy step back from collapse. "Their effect on the deficit was much smaller than previously estimated," the release said.

Republicans were less kind in their appraisal and blamed Democratic policies for the deficit.

"Just a few years ago, the deficit was under $500 billion," said Senate Budget Committee ranking member Judd Gregg, R-N.H., "Now, since the Democrat majority has taken control of the nation's checkbook, deficits have risen to staggering levels and will average $1 trillion annually for the next decade under the president's policies. These abrupt and shocking changes in our fiscal situation cannot be dismissed as 'inherited' problems when the tally of the majority's spending spree has climbed into the trillions."

The report will add fuel to the fire as campaign rhetoric on spending and the deficit has led many stump speeches. Americans go to the polls Nov. 2.

"Today's eye-popping deficit of $1.29 trillion should come as no surprise to the American people given the months of unchecked spending by the Democratic Congress," Sen. John Cornyn, R-Texas, chairman of the National Republican Senatorial Committee, said. "This deficit report is more evidence that the fiscal policies of our self-proclaimed 'tax-and-spend liberal' president are not working."

The Treasury-OMB report noted that the Troubled Asset Relief Program -- a $700 billion package designed to aid the financial industry -- had outlays of just $9 billion in fiscal 2010, which was $25.9 billion, or 74 percent, below estimates from July 2010.

Aid to Fannie Mae and Freddie Mac was $52.6 billion in fiscal 2010 -- $16.4 billion or 24 percent less than the most recent forecast, according to Treasury and OMB. "This played a large part in reducing the deficit, which as a percentage of gross domestic product fell to 8.9 percent, down from 10.0 percent of GDP in fiscal 2009. This improvement -- 1.1 percent of GDP -- was the most rapid one-year improvement since FY 1987," the release said.

"By carefully managing the emergency initiatives to stop the financial panic and by accelerating our exit from those investments, we have significantly lowered the cost to taxpayers," Treasury Secretary Timothy Geithner said. "However, we still have a long way to go to repair the damage to the economy and address the long-term deficits caused by the crisis."

OMB Acting Director Jeffery Zients added, "Because the president believes that we must also work to get back on a fiscally sustainable path, our FY 2012 budget policy process will continue to enforce the three-year, non-security discretionary spending freeze and continue our efforts to put the nation on firm fiscal footing."