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Government debt explosion turns corner

WASHINGTON, D.C. — The government’s explosive borrowing has hit a turning point: It’s expected to drop 18 percent this year after setting a record high last year. The brighter picture is due to higher tax revenue and less government spending as the economy has improved.

But the Obama administration still expects this year’s deficit to set another high: $1.56 trillion. Even if, as expected, that number is trimmed a bit when the administration releases a revised estimate this summer, the new figure is not likely to drop below $1.4 trillion — which would match last year’s all-time record.

Still, the improving economy is boosting revenues and lowering emergency spending in such areas as stabilizing the financial system and jump-starting economic growth. And those gains have led Treasury to trim its estimated borrowing needs for this budget year to $1.459 trillion, down by 18.3 percent from last year’s record $1.786 trillion in borrowing.

Because of that drop, the Treasury Department announced Wednesday that it was trimming its borrowing amount at its regularly quarterly auction to $78 billion in a series of three debt auctions next week, down from a record $81 billion at the last quarterly action in February.

It marked the first decrease in the amount the government planned to borrow at a quarterly auction since May 2007 and many economists saw it as a watershed event, indicating that the high point for Treasury’s debt demands had passed.

“The government still needs boatloads of money, but at least borrowing has peaked,” said Mark Zandi, chief economist at Moody’s Analytics. “The better economy is helping to slow the growth in spending and the improvement in the financial system means that banks are now paying back the money they received last year.”

But the improvement does not mean that the country is out of the woods in terms of its own debt problems.

The deficit soared to $1.4 trillion last year and private analysts believe it will be around that level this year, and the administration is forecasting that the deficit for 2011 will decline only slightly to $1.227 trillion next year.