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Wednesday, 20 March, 2002, 22:46 GMT
US falls into the red in February
US President George W Bush
Despite the shortfall, Mr Bush is seeking further tax cuts
The US government has recorded its largest budget shortfall in six months as tax cuts and refunds combined with war expenditures expanded Washington's indebtedness.

For the month of February, the US recorded a deficit of $76.1bn (53.3bn), up nearly 60% from year-ago levels. It is the largest shortfall since last summer.

The independent Congressional Budget Office's (CBO), meanwhile, had called for the deficit to grow to $75bn, in line with analyst estimates of about $74bn.

The further deepening deficit threatens to give the US its first full year of deficits since 1997. The White House has predicted this year's budget deficit to reach $106bn.

Stimulating the economy

The US government typically runs a deficit in February due to the initial wave of tax refunds submitted by taxpayers.

This year, however, increased spending for the war in Afghanistan, last summer's tax cuts and rebates and the economic recession all helped to push the nation further into debt.

US currency
The US government is pulling in less money
Some economists say, however, that the recent reduction in tax rates along with last summer's rebate cheques from the Treasury may stimulate the economy enough to moderate the size of the shortfall.

The US government derives about half of its revenue from income tax receipts from individuals, increasing the importance of limiting joblessness caused by a souring economy.

Effects of recession

Rising unemployment reduces tax rolls and increases government expenditures associated with unemployment benefits.

While some economists, including Federal Reserve Chairman Alan Greenspan, have said the nation's economy is already on the mend, most still expect the unemployment rate to increase in the coming months from February's 5.5% to at least 6%.

As part of an economic stimulus package signed by President George W Bush earlier this month, unemployment benefits have been extended by 13 weeks for those still looking for work.

Now, Mr Bush is seeking another $117bn in tax cuts over the next 10 years in the hopes of further stimulating the economy and reducing the effects of recession.

But February's increase in the budget gap threatens to curtail any further tax-cut legislation President George W Bush hopes to push through Congress.

Republicans are fearful Democrats will use this latest increase in government indebtedness as a reason to question the soundness of the administration's fiscal policies.

Mr Bush's signature on a $1.35 trillion tax cut last June has been labelled by Democrats as fiscally imprudent given the rise in government expenditures caused by the recession and the war in Afghanistan.

See also:

30 Jan 02 | Business
Bush promises to defeat recession
26 May 01 | Americas
US Congress passes tax cuts
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