Budget Gap Widens in FY2011; Tops $1T for Third Year

The U.S. budget gap widened slightly in fiscal 2011, staying above $1 trillion for a third straight year and providing fodder for a political battle over taxes and spending ahead of next year's presidential election.

The Treasury Department report on Friday comes just over a month after an epic showdown over the nation's debt ceiling, which pushed the United States close to a debt default and led to a downgrade of America's prized AAA credit rating.

The shortfall in September, the final month of the fiscal year, widened to $64.57 billion compared to the same month a year earlier, although it came in at a few billion dollars less than economists had projected.

The U.S. economy, the world's largest, has escaped the painful debt crisis the euro zone is now suffering, although the deterioration in its fiscal stance has roiled domestic politics.

Many experts argue anemic U.S. growth and a dire job market call for near-term fiscal stimulus or, at the very least, restraint in implementing spending cuts.

President Barack Obama has proposed a $447 billion plan to create jobs, but it was rejected by the Senate this week and now lawmakers are trying to pick up the pieces.Republicans in Congress have been pushing hard for deep spending cuts to address the budget gap.

While the budget deficit widened in dollar terms in the latest fiscal year, it narrowed to 8.7 percent of U.S. gross domestic product from 9 percent in fiscal 2010. Economists say the GDP gauge is a more meaningful metric than the size of the budget shortfall measured in dollars.

(Reporting by Pedro Nicolaci da Costa; Editing by Neil Stempleman)