WASHINGTON (MarketWatch) — The U.S. government’s budget deficit dropped sharply in fiscal 2013, pushed to its lowest level in five years by record revenues and modestly lower spending.

For the fiscal year that ended on Sept. 30, the deficit was $680 billion, or 4.1% of gross domestic product, the Treasury Department reported late Wednesday. That is the smallest annual shortfall since the $459 billion gap posted in 2008, and 38% below the fiscal 2012 deficit.

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The full-year figure includes a surplus of $75 billion for September.

The deficit has fallen mostly due to increased revenues, as well as slightly lower government spending reflecting the across-the-board budget cuts known as the sequester.

Budget receipts hit a record high in fiscal 2013, a Treasury official said. Revenue was $2.8 trillion for the fiscal year, up 13% from 2012.

Receipts of Individual income taxes and corporate taxes both rose 11% in fiscal 2013 compared to a year earlier, a reflection of both higher tax rates enacted in January and the improving economy.

Spending for the full year totaled $3.5 trillion, a decrease of 2%.

The government’s fiscal year runs from October to September.

The full-year deficit is the first of Barack Obama’s presidency to come in below $1 trillion. Deficits have fallen from a peak in 2009, when the U.S. was still struggling from the recession. The budget gap for fiscal 2012 was $1.1 trillion.

The 2013 figures arrive as a group of lawmakers has begun meeting to hash out funding levels for the fiscal year that began Oct. 1. The government shut down for 16 days earlier this month because Congress couldn’t agree on a fiscal 2014 funding measure. The deal that broke the impasse raised the U.S. debt limit and re-opened the government only through Jan. 15. If lawmakers fail to agree on new spending before that date, they risk another shutdown.

A key component of those talks is what to do about the sequester, which cuts about $1 trillion over 10 years in funding for military and domestic programs including education and housing. The first cuts went into effect in March.

Republicans including Senate Minority Leader Mitch McConnell have said they want to lock in the spending cuts. Democrats such as Patty Murray, who chairs the Senate’s budget committee, want to get rid of it and replace it with different spending cuts. Democrats also want to raise revenue through closing what they say are wasteful tax loopholes that benefit corporations and the wealthy.

Republicans insist that they won’t raise taxes in the budget conference or in other negotiations.

“If this conference becomes an argument about taxes, we’re not going to get anywhere,” Ryan said at a meeting of the House-Senate budget group on Wednesday. See Capitol Report.