By Nick Mann | 8 October 2012

The US posted a $207bn reduction in its federal budget deficit in 2011/12 compared with the previous year, but the total deficit remained above $1trn, government economists said today.

Figures published by the Congressional Budget Office for the fiscal year ending September 30 estimate a deficit of $1.1trn – equivalent to 7% of gross domestic product.

This represents the third consecutive fall in the deficit – down from a peak of 10.1% in 2009 to 9% in 2010 and again to 8.7% in 2011. However, with the exception of those three years, the 2011/12 deficit-to-GDP ratio was still higher than in any other year since 1947.

The estimated deficit is $38bn below the CBO’s August forecast, an improvement the economists attributed to higher than expected revenues and lower than forecast spending towards the end of the fiscal year.

Federal government spending fell by an estimated 1.6%, or $59bn, in 2011/12, totalling $3.5trn. Particular reductions were recorded for the means-tested health programme Medicaid, where government outlays fell by 9%, and unemployment benefits, where spending fell by 24%. Significant reductions were also recorded in defence spending and education programmes.

Spending increased, however, on social security, by 6%, and on the government-funded health insurance programme Medicare, by 3%.

According to the CBO’s estimates, revenues increased by 6%, or $148bn, to $2.5trn, with an increase in net receipts of 34% from corporate income taxes and 3% from individual income taxes.

Last week, the two candidates for the US presidency, Democrat incumbent Barack Obama and Republican challenger Mitt Romney clashed over their respective plans to cut the US deficit. Obama says he aims to increase the taxes paid by high earners, while Romney has ruled out tax rises and will instead focus on cutting ‘non-essential’ government programmes.

The US Treasury Department will report final figures for the US federal government deficit later this month.