US deficit looms large despite April surplus

— For the first time in nearly four years, the U.S. government last month took in more money than it spent.

The surplus for April was a welcome sign that the economy is trudging back to health. Still, it's just one month of black ink in a budget stained in red. For the budget year, the country remains on track for a fourth straight $1 trillion deficit - a trend that should keep the deficit near the center of the presidential race.

Through the first seven months of the budget year that began Oct. 1, the United States has run a $719 billion deficit, the Treasury says. The April surplus of $59.1 billion isn't unusual, because annual tax returns are due that month. Yet as the first April surplus since the 2008 financial crisis erupted, the surplus shows that modest job growth and higher corporate profits have boosted tax revenue.

Just as in Europe, the surge in deficits has led political leaders in the United States to focus on tightening budgets rather than spending more to strengthen economic growth.

But the United States enjoys key advantages over Europe. Unlike many European nations, it can borrow at super-low rates. That's largely because investors regard the dollar and U.S. Treasurys as ultra-safe compared with other global assets. Money has poured money into Treasurys since the financial crisis, driving down their rates and easing borrowing costs for the U.S. government.

The resilience of the U.S. economy has further attracted investor interest. Though sluggish, the U.S. economy is growing steadily. By contrast, some European countries have fallen into recession. More are expected to follow. Britain has slid into recession after the enactment of spending cuts and tax increases.

Strict budget-cutting could prevent Europe from growing much in the near future. U.S. lawmakers have also considered deep cuts. But so far, Democrats and Republicans are at odds over how to shrink the deficit.

Sung Won Sohn, an economics professor at California State University's Martin Smith School of Business, cautioned that investors may not always be so willing to finance U.S. deficits.

"With the European debt crisis, we are looking at a movie that could happen to us," Sohn said. "We should not be pointing a finger at Europe. We have been doing the same thing - living way beyond our means."

Republicans in Congress are pushing proposals to slow the growth of federal spending more than Democrats favor. The GOP-controlled House on Thursday passed legislation to reduce domestic programs, including food stamps and health care. Those reductions are intended to avoid steep automatic cuts in military programs.

The White House has threatened a presidential veto. It's urged Republicans to work with the administration to produce an acceptable deficit-cutting package.

In February, President Barack Obama proposed reducing the deficit with a mix of spending cuts and revenue increases. He would let the Bush-era tax cuts expire for couples who earn more than $250,000 and set a 30 percent tax rate on those making more than $1 million.


