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WASHINGTON — The government ran the largest-ever budget deficit for a single month in February. The shortfall kept this year's annual deficit on pace to end as the biggest in U.S. history.
The widening deficit reflects the impact of the tax-cut package President Barack Obama and congressional Republicans brokered in December.
As a result, the nonpartisan Congressional Budget Office in January raised its estimate for the annual deficit from $1.1 trillion to $1.5 trillion. It said the tax cuts would add $400 billion to this year's gap. The budget year ends Sept. 30.
The tax-cut package extended income tax cuts, reduced workers' Social Security taxes, extended unemployment benefits and accelerated business tax write-offs, among other steps.
February's deficit of $222.5 billion eclipsed last February's record by nearly $2 billion. The full-year deficit would exceed 2009's record deficit of $1.41 trillion. And it would mark the third straight year of $1 trillion-plus deficits.
It's unusual for an economy to be running record-high deficits this far into a recovery. The recession that began in December 2007 ended in June 2009. The problem is that the financial crisis and the recession that followed fueled explosive deficit growth.
The government collected less tax revenue after millions of people lost their jobs. And it spent more than $1 trillion to bail out the financial system and stimulate the economy.
Republicans have pushed for more than $60 billion in spending cuts this year to help shrink the deficit. Obama and congressional Democrats support some cuts. But they object to the scope of the Republican cuts. They argue that the GOP cuts would unfairly hurt education, college aid and support for low-income groups.
Even if Republicans achieved their target for spending cuts this year, the 2011 deficit would still be on track to hit a record. Through the first five months of this budget year, government revenue totaled $869 billion. That was up 8.6 percent from the same period a year ago. Government spending totaled $1.51 trillion, a 4 percent increase.
The overall tax-cut package enacted in December has been estimated to cost $858 billion. The one-year Social Security tax cut reduces that tax for all wage earners, from 6.2 percent to 4.2 percent, on the first $106,800 in annual pay. Its estimated cost is $112 billion.
One of the sharpest increases in government spending has been interest payments on the debt: $94.5 billion so far this budget year. That's up 9.3 percent from the same period a year ago. It reflects the growing size of the national debt from the annual deficits.
Economists have warned that unless Congress and the White House agree on a credible plan to reduce the deficit, they risk hurting the economy. Investors could grow nervous and demand higher interest payments to lend to the government. That would drive up borrowing costs for the government and for consumers and businesses. Economic growth would slow.
Federal Reserve Chairman Ben Bernanke has called for a plan to reduce the deficit over the long run. But Bernanke has cautioned against slashing spending too soon. Last week, he told Congress that the Republicans' proposed spending cuts could cost the economy a couple hundred thousand jobs.
Private economists have suggested that the damage would be worse. Mark Zandi, chief economist at Moody's Analytics, has estimated that the GOP plan would cost the economy 700,000 new jobs by the end of next year.
Still, Zandi, too, has pushed for deficit reduction.
"The huge deficits are the nation's most serious long-term economic threat," he said Thursday. "These numbers highlight that we need to make some very fundamental changes to government spending and tax policy."
