WASHINGTON (AP) -- The federal government likely ran a deficit in May after a rare monthly surplus in April. But steady economic growth and higher tax revenue are expected to keep the annual deficit on track to finish the budget year below $1 trillion for the first time in since 2008.
The Congressional Budget Office is projecting that the government ran a $139 billion deficit in May. That would bring the gap through the first eight months of the budget year to $627 billion.
The Treasury Department will report on the May deficit at 2 p.m. EDT Wednesday.
The CBO forecasts an annual deficit of $642 billion for the budget year that ends on Sept. 30. That's down from last year's deficit of $1.09 trillion and would be a significant improvement after four straight years of $1 trillion-plus imbalances. Even with the improvement, it would still be the fifth-largest deficit in U.S. history.
The federal deficit represents the annual difference between the government's spending and the tax revenues it takes in. Each deficit contributes to the national debt, which recently topped $16 trillion. At the same time, a smaller deficit has taken pressure off of negotiations to raise the federal borrowing limit.
Through April, revenue was up 16 percent for this budget year to $1.6 trillion. That's the biggest tax haul for the October-April period on record, according to Treasury officials.
Tax receipts are rising this year because of an improving economy and higher rates that went into effect on Jan. 1.
Social Security taxes rose 2 percentage points after a two-year cut expired and income tax rates for the highest-earners also increased.
Modest economic growth has also boosted tax revenue. Corporate income tax receipts have increased 16 percent in the first seven months of the budget year.
The government will also benefit in June from a $59.4 billion payment from Fannie Mae and a $7 billion payment from Freddie Mac. The mortgage giants are profitable again and are paying dividends to the government in return for the loans they received during the financial crisis.
And while revenue is rising, spending has declined 1 percent in the first seven months of the budget year. Defense spending has fallen 5 percent. Spending on unemployment benefits has dropped 21 percent. The Treasury Department has also recalculated the cost of its bank bailout program, as more of those funds have been repaid. That's lowered the cost of that program by $50 billion this year.
Across-the-board government spending cuts that began on March 1 are expected to lower spending further in the remaining months of this budget year.
The deficit reached a record $1.41 trillion in budget year 2009, which began four months before President Barack Obama took office. That deficit was largely because of the worst recession since the Great Depression. Tax revenue plummeted, while the government spent more on stimulus programs.
The budget gaps in 2010 and 2011 were slightly lower than the 2009 deficit as a gradually strengthening economy generated more tax revenue.
President George W. Bush also ran annual deficits through most of his two terms in office after he won approval for broad tax cuts and launched wars in Afghanistan and Iraq.
The last time the government ran an annual surplus was in 2001.