$1.3 trillion deficit for 2011, CBO says

@CNNMoney October 7, 2011: 3:27 PM ET

NEW YORK (CNNMoney) -- The federal government closed out fiscal year 2011 with an estimated deficit of $1.3 trillion, according to Congressional Budget Office estimates released Friday.

It was the third straight year that the deficit exceeded $1 trillion.

The deficit is the annual gap between what the government spends and what it takes in. Accumulated deficits make up the national debt, which is currently $14.8 trillion.

The fiscal 2011 deficit accounted for 8.6% of the size of the overall economy -- down slightly from 2010, when the deficit was about 9% of GDP.

One reason for the slight improvement: Individual income tax receipts were up nearly 22% in part because of increases in wage and nonwage income.

CBO to debt committee: Cutting now could hurt

There was some improvement on the other side of the budget as well. Spending on education, commerce, housing and space programs fell, and spending on defense, Medicare, Medicaid and Social Security grew more slowly than usual.

In addition, spending on unemployment benefits fell by 24%, as fewer claims were filed and a temporary $25 weekly increase in benefits expired.

At the same time, businesses paid $12 billion more in unemployment insurance taxes in 2011. Many states have raised unemployment taxes on companies to replenish their depleted UI trust funds.

Not all tax receipt categories grew, however. Nor did all spending categories fall or moderate.

Corporate income tax revenue overall fell about 6% due to stimulus-based tax cuts that let companies accelerate their deductions. Similarly, social insurance tax receipts, which support Social Security and Medicare, fell 5.3% because of the payroll tax cut approved by Congress in December 2010.

Interest costs rose by nearly 17% -- despite very low rates -- because of the big jump in government debt over the past year.

Final numbers for fiscal year 2011 won't be out until later this month, when the Treasury Department releases its monthly budget statement.

-- CNNMoney's Tami Luhby contributed to this report To top of page

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