Revenue Rise, Decreased COVID Spending Lead to Smallest Monthly U.S. Deficit in 2 Years

The federal government in December had its smallest monthly budget deficit since before the onset of the COVID pandemic as some sectors of the economy have started to recover and several pandemic spending programs are being phased out.

The Treasury Department said on Wednesday that the government posted a $21.3 billion deficit in December, the smallest since December of 2019 with a deficit of $13 billion.

It is also a fraction of the December 2020 deficit of $143.6 billion, when the federal government was spending massive amounts of money to keep the economy afloat as millions of Americans were left without jobs after the pandemic-induced shutdowns through much of 2020.

The deficit for the 2021 budget year, which ended in September, trailed only 2020 for the highest in U.S. history at $2.78 trillion, following a deficit of $3.13 trillion.

The deficit for the first three months of the budget year that began in October amounted to $377.7 billion, a 30 percent decrease from the deficit the federal government racked up from October to December of 2020.

The decrease in monthly deficit shows the extent to which the economy has begun to recover, providing more in tax revenue for the government as several spending programs necessitated by the pandemic have ended as vaccines have become more widely available and millions of Americans have returned to work.

Treasury Department Budget Deficit Pandemic
The Treasury reported Wednesday that the federal government posted the smallest monthly budget deficit in two years in December. Above, a statue of Albert Gallatin, a former U.S. Secretary of the Treasury, in front of the Treasury Building in Washington, D.C. Robert Alexander/Getty Images

In the October-December period, government revenues were up 30.1 percent compared to the same period a year ago. Tax revenues from individuals and corporations were both up by solid amounts, reflecting an economy growing this year at the fastest pace since the mid-1980s.

Government spending during that period rose by a much smaller 3.8 percent compared to the same period a year ago to $1.43 trillion. The government outlays and tax receipts, which totaled $1.05 trillion, were both records for the first three months of a budget year.

There would have actually been a surplus last month if not for calendar quirks that required some government benefit payments for January to be paid in December.
Economists believe that with the COVID spending winding down, this year's deficit will be about half the size of the 2021 shortfall.

Oxford Economics is projecting a deficit of $1.40 trillion this year. Nancy Vanden Houten, an economist with the firm, said that figure is $70 billion higher than what she was forecasting in December, an increase that reflects the fact that Oxford Economics now expects the economy in 2022 to grow at a slower pace of around 4 percent, as measured by the gross domestic product.

That would be down from a December GDP forecast of 4.4 percent for 2022. Many economists have been lowering their growth forecasts for this year to reflect the surge in COVID cases in recent weeks.

If President Joe Biden fails to win congressional passage of his Build Back Better spending plan for improvements in the social safety net and combating climate change, the deficit this year will be $100 billion to $150 billion lower than Oxford's current estimate of $1.40 trillion, Vanden Houten said.

The Associated Press contributed to this report.