The U.S. federal budget deficit through the first four months of the fiscal year is running at a record-breaking pace even though January's deficit was smaller than expected, the Treasury Department reported Wednesday. The massive imbalances reflect the continued effects of a deep recession and a severe financial crisis and highlights the formidable challenges President Barack Obama faces while trying to reduce federal deficits. January's budget deficit totaled $42.63 billion, bringing total deficits this budget year to $430.69 billion, or 8.8 percent higher than the pace last year, when the deficit soared to an unprecedented level of $1.42 trillion. Obama, in his budget request submitted to Congress earlier this month, projected that this year's deficit would reach $1.56 trillion and would remain above $1 trillion for three consecutive years. He forecast the 2011 deficit, for the fiscal year that starts October 1, would total $1.27 trillion. The Obama administration says it will begin to address the deficit problem starting in 2011. In his budget, Obama offered a down-payment on deficit reduction-a three-year freeze on discretionary government spending excluding defense and homeland security. On Thursday, Obama plans to announce creation of a deficit commission headed by Erskine Bowles, a former White House chief of staff in the Clinton administration, and former Senator Alan Simpson (Republican from Wyoming). The panel will be created by executive order because Republicans rejected the idea in Congress. The commission will report by the end of the year on what steps Congress and the administration should take to reduce the deficit to 3 percent of gross domestic product (GDP), a point that economists believe is manageable. Last year's deficit equaled 9.9 percent of GDP, the highest point since the second world war, and would rise to 10.6 percent of GDP this year.
