Federal budget deficit drops to $27 billion in January

WASHINGTON (AP) — The federal budget deficit fell sharply in January compared to a year earlier, as an improving economy lifts income tax revenue.

The deficit is on track to shrink this year, but the red ink will still run deep: it is forecast to top $1 trillion for the fourth year in a row. That's likely to mean that budget issues in Congress will remain high-profile and contentious this year.

The deficit declined to $27 billion last month, from $50 billion in January 2011, the Treasury Department said today. Most of the drop was due to several accounting changes. The biggest resulted in some benefit payments being made in December rather than January.

Even excluding the impact of those changes, the budget gap declined 18 percent last month, mostly because of higher tax receipts.

The Congressional Budget Office, a nonpartisan agency, forecast last week that the budget gap will be nearly $1.1 trillion in budget year 2012, which began Oct. 1. That's down from $1.3 trillion in the previous year.