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Budget gap narrows in February from year ago

A view shows the Federal Reserve building on the day it is scheduled to release minutes of the Federal Open Market Committee from August 1,
A view shows the Federal Reserve building on the day it is scheduled to release minutes of the Federal Open Market Committee from August 1,

By Anna Yukhananov

WASHINGTON (Reuters) - The monthly U.S. budget deficit narrowed in February compared to the same month a year ago, as a delay in tax refunds and lower defense spending added cash to government coffers, the Treasury Department said on Wednesday.

The February deficit was $204 billion, only $1 billion lower than economists' expectations. The deficit in the same month a year ago was $232 billion.

With spending only slightly higher than last year, and tax collection outpacing levels from 2012, the government is on track to post its first budget deficit below $1 trillion in five years. The United States had a $1.1 trillion deficit last year.

The Internal Revenue Service, the tax-collecting agency, said it would not be able to process any returns filed before January 30 this year due to last-minute and retroactive tax law changes. It thus issued $66 billion in tax refunds last month, 18 percent lower than in February 2012.

Federal tax refunds are also arriving later than expected this year for some lower-income Americans due in part to closer scrutiny by the IRS of earned income tax credit claims, the agency said last month.

The government's cumulative deficit for the fiscal year, which starts in October, narrowed to $494 billion, down 15 percent from $581 billion in the first five months of fiscal 2012.

The Congressional Budget Office estimates the U.S. deficit will be $845 billion by the time the fiscal year ends if there are no further policy changes. It would be first time the deficit has been below $1 trillion since 2008.

BUDGET CLASH

The narrowing budget deficit for this year comes as the United States' long-term debt has become a hot-button political issue, with competing ideas about the proper level for taxes and spending.

In dueling budget plans this week, Republicans and Democrats in Congress offered up vastly different plans to slash long-term deficits. The budgets are unlikely to get through Washington's divided government in their current form.

A deficit for the year shows the government's spending, on programs like Medicare and Social Security, outpaced the money it received from taxes. The national debt, currently $16.7 trillion, is the sum of accumulated deficits over time.

In releasing its monthly budget, the government generally compares the figures from each month to the same month a year ago since the data can be impacted by seasonal events, like the filing of taxes.

Government spending was $326 billion in February, just below the year-ago level of $335 billion, though defense spending fell by 16 percent compared to last February. Receipts were $123 billion last month, 19 percent higher than receipts in February 2012.

For the past five months as a whole, government receipts have risen 13 percent to $1.011 trillion, compared to the same period in fiscal 2012. Spending has grown 2 percent to $1.5 trillion, the Treasury Department said.

(Reporting by Anna Yukhananov; Editing by Neil Stempleman and Chizu Nomiyama)

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