Cross of debt

26 March 2008 By Martin Hutchinson

Incipient recession is widening the US budget deficit. It should exceed $500bn for the year to September 2008, compared to a declining traderelated current account deficit of $739bn in 2007. Soon, fiscal profligacy will more than account for US trade woes.

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Goldman Sachs raised its forecast for the 2008 budget deficit to $500bn, compared with the $410bn forecast in the president's budget on February 4. The principal drivers of the increase were declining corporate tax receipts, down 14.8% in the five months to February, and slower growth in withheld income taxes as upper income individuals experience slower personal income growth.

The budget for the year to September 2009 forecast a spending increase of 7.4% in 2008 and 6.0% in 2009, followed by a decline of 0.5% in 2010 the first since 1965, if it happens. The deficit was projected at $410bn in the year to September 2008, $407bn in the year to September 2009 and $160bn in the year to September 2010.

The US current account or balance of payments deficit declined from $811bn in 2006 to $739bn in 2007.

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