U.S. budget deficit in June sinks 49% to $89 billion

The numbers: The U.S. budget deficit shrank 49% to $89 billion in June from $174 billion a year earlier, reflecting the end of Covid-relief spending and an increase in tax revenue.

The U.S. is still on track to post the first annual deficit below $1 trillion since the start of the pandemic two and a half years ago.

Key details: Government spending fell in June by 12% to $550 billion compared to $623 billion in the same month one year ago. The government spent extravagantly last year on Covid-relief payments for households and businesses.

The amount of taxes collected last month rose by 3% to $461 billion from a year earlier.

For the first nine months of the current fiscal year, the deficit totaled $515 billion compared to $2.24 trillion in the same period last year.

The fiscal year began last October and ends on Sept. 30.

Big picture: Less government spending and falling deficits might help ease inflation, but not by much. The economy is still awash in money because of massive federal stimulus early in the pandemic.

What’s helping to lower the deficit faster than expected is sharp increase in tax revenue. Receipts have jumped 26% in the current fiscal year vs. an 18% drop in spending.

Higher tax receipts are the byproduct of a strong U.S. recovery from the pandemic, but high inflation spawned in part by government stimulus has also boosted inflation to the highest rate in almost 41 years.

The Federal Reserve is jacking up interest rates to try to tame inflation, but it risks a recession if rates go to high. In such a scenario tax receipts would likely fall and government benefits could rise, possibly reversing some of the decline in the budget deficits.

The U.S. national debt recently topped $30 trillion.

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