The U.S. federal budget deficit fell sharply in January compared to a year earlier, as an improving economy lifted tax revenue. The deficit fell to $27 billion last month from $50 billion in January 2011, the Treasury Department said. The deficit is on track to decline this year from the $1.3 trillion seen in 2011, but the Congressional Budget Office (CBO), a non-partisan agency, forecast last week that the deficit will be almost $1.1 trillion, the fourth consecutive year it will surpass $1 trillion. Higher corporate tax receipts increased the government's revenue in the first four months of the budget year, the department said, but the fiscal situation has not improved as much as the CBO had estimated it would last year. In August, the agency projected that the deficit would be $973 billion this year, but last week, it raised its estimate, citing lower-than-expected tax revenues. Congress has shown little ability to make difficult changes to tax levels or spending programs to reduce the deficit. Lawmakers will face another challenge at the end of 2012, when tax cuts that first were enacted in 2001 and 2003 are set to expire. The CBO estimates that if Congress extends the tax cuts, as many observers expect, and if they block planned spending cuts, the deficit will remain near $900 billion or more annually for the next 10 years.
