Washington, Jan. 22 (Bloomberg) -- The U.S. government had the smallest December budget surplus in four years as revenue dropped and spending jumped, the Treasury said in its monthly budget statement. The government's December surplus shrank to $4.37 billion from $26.6 billion a year earlier -- the weakest performance since a deficit of $5.2 billion in December 1998. December has typically been a surplus month for the government, as the Treasury collected quarterly tax payments. The U.S. is on course for its second consecutive annual budget deficit as slow growth and persistent unemployment hurt revenue and as defense spending rises. In St. Louis today, President George W. Bush urged Congress to approve his $670 billion plan to boost the economy and argued that ``part of making sure deficits don't balloon is for Congress to hold the line on spending.''
``Even without a tax cut, the deficit for this year will be on the order of $200 billion,'' said Lyle Gramley, a former Federal Reserve Board governor who is now senior economic adviser at Schwab Capital Markets in Washington. ``With the tax package, it'll be bigger, and in the next fiscal it will be even bigger. Where we're going longer run is harder to ascertain.'' U.S. families grew wealthier during the three years through 2001 as the record economic expansion boosted personal incomes, lifted home prices and turned more than half of all households into stockholders, the Federal Reserve said in a separate report.
Revenue Falls, Spending Rises
The Treasury had been expected to post a surplus of $5 billion for December, based the median of 36 forecasts in a Bloomberg News survey of economists. Over the past three Decembers, the Treasury has reported an average surplus of $31 billion. Revenue in December declined to $182.8 billion from $187.9 billion in the final month of 2001. The Treasury said spending last month rose to $178.4 billion from $161.4 billion a year earlier. For the first three months of this fiscal year, which started Oct. 1, the Treasury reported a budget deficit of $108.7 billion compared with a deficit of $35.4 billion during the first three months of fiscal 2002. In the fiscal year that ended Sept. 30, the government spent $157.8 billion more than it took in, revised from the initially reported shortfall of $158.5 billion. That followed four years of budget surpluses. The deficit peaked in fiscal 1992 at $290.4 billion, when it was about 4.7 percent of GDP.
`Two Big, Persistent Problems'
For fiscal 2003, according to the Congressional Budget Office, the deficit is projected to be ``well above the $145 billion estimated by the CBO in August.'' A new CBO estimate will be published in late January, according to the agency's web site. ``There are two big, persistent problems on the Federal budget front -- the lack of corporate profits and corporate tax revenue, and the lack of capital gains taxes,'' said Chris Low, an economist at FTN Financial in New York. ``These have taken a far bigger bite from revenues than tax cuts. Judging from the latest crop of earnings reports, there's no relief in sight. The corporate earnings environment remains lousy.'' Bush in November signed into law the biggest one-year increase in defense spending in two decades, providing $355.1 billion for the military. Earlier this month, Bush unveiled his $670 billion plan to spur the economy by ending taxes on stock dividends and accelerate income tax cuts.
Costs of War
Additionally, the Bush administration expects that a war with Iraq would cost about the same as the $61 billion expense of the 1991 Persian Gulf conflict. In 1991, allies including Saudi Arabia and the U.K. paid for all but $8 billion, according to Defense Department statistics. The U.S. budget deficits are forcing the Treasury to increase borrowing. The government sold a record-tying $40 billion in Treasury notes at its quarterly auction of five-year and 10-year notes in November. White House budget director Mitch Daniels said the projected annual budget shortfalls of $200 billion to $300 billion will be manageable in a $10 trillion economy, accounting for 2 percent to 3 percent of gross domestic product over the next two fiscal years. ``By any historical measure, these are manageable deficits,'' Daniels said Jan. 15, after delivering a speech to the U.S. Chamber of Commerce. ``Our common goal ought to be to try and contain them.''
Fed Household Survey
In a survey of 4,000 households it conducts every three years, the Fed found that median net wealth, the difference between household assets and liabilities, jumped 10.4 percent to $86,100 over the three years through 2001. The gain was paced by financial assets such as retirement accounts, stocks and mutual funds. The findings reflected a economy that was growing at an average of 4 percent a year before tapering off in early 2001. Many people also took on debt, which increased 9.6 percent, while devoting a smaller share of their income to repayments, the Fed found. In 2001, according to the survey, 51.9 percent of all households owned stock. An index of applications for U.S. mortgages fell last week as refinancing plans declined from a two-month high, the Mortgage Bankers' Association of America said today. The organization's mortgage applications index dropped 4.7 percent to 1100.3. The refinancing index fell 6.1 percent to 5433.4 from the prior week and was down from a recent peak of 5871.1 at the start of January.//www.quote.bloomberg.com