Budget Deficit for Fiscal 2010 Narrows $1.29 Trillion

10/16/2010 09:04 AM ET

The big budget deficit for fiscal 2010 narrowed to $1.29 Trillion from last year’s record $1.416 trillion as tax collections started to recover and bailout spending fell sharply.

The Treasury Department said on Friday the deficit came to 8.94 percent of gross domestic product for the year ended September 30, versus 10 percent in fiscal 2009.

The government called the deficit-to-GDP improvement the biggest since fiscal 1987.

Nonetheless, the budget gap was still the second-highest in U.S. history and too big to ease market demands and congressional calls for budget restraint in Washington.

“It’s still abnormally large in terms of GDP, and doesn’t change the need for fiscal consolidation,” said Alan Ruskin, global head of foreign exchange market strategy at Deutsche Bank in New York. “You would have to see figures in the 6 percent range before you start to change perceptions that there’s been a genuine improvement.”

High deficits have become a hot-button campaign issue in November’s congressional elections, with many Republicans branding President Barack Obama’s spending policies as “reckless.” Democrats counter that bailout and stimulus spending was necessary to prevent the economy from collapse and an even worse fiscal picture.

“Congress created this problem, and Congress needs to fix it by cutting spending to balance the budget. Washington’s addiction to spending is no excuse to raise taxes,” said Rep. Tom Price of Georgia, who heads a group of conservative House Republicans.

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