August Monthly Budget Review

August 6, 2009

Today CBO released its estimates of federal revenues and outlays for the first 10 months of fiscal year 2009. The budget deficit through July 2009 reached $1.3 trillion, CBO estimates, close to $880 billion greater than the deficit recorded in the 10 months through July 2008. Outlays rose by almost $530 billion (or 21 percent) and revenues fell by more than $350 billion (or 17 percent) compared with the amounts recorded during the same period last year.

The estimated deficit reflects outlays of about $169 billion for the Troubled Asset Relief Program (TARP), recorded on a net-present-value basis adjusted for market risk, and net cash payments of $83 billion in support of Fannie Mae and Freddie Mac. CBO believes that Fannie Mae and Freddie Mac should now be considered federal operations and that the full scope of their activities should be incorporated in the federal budget. The Treasury statements,however, are just recording the cash infusions from the Treasury as federal outlays. CBO estimates that spending increases and revenue reductions stemming from the American Recovery and Reinvestment Act of 2009 (ARRA) have totaled more than $125 billion so far this year (excluding the impact on the budget from the effects that the legislation has had on the economy).

According to CBOs estimates, receipts were about $8 billion (or 5 percent) lower in July 2009 than they were in July 2008, marking the 15th consecutive month in which receipts were lower than those in the same month of the previous year. Withholding for income and payroll taxes was about $11 billion (or 8 percent) less than that in July 2008, CBO estimates; about half of that decline resulted from provisions in ARRA, primarily the Making Work Pay tax credit.

Outlays were $71 billion higher this July than in the same month last year because of growth in spending and the effects of the calendar. August 1, 2009, fell on a weekend, which shifted about $24 billion in outlays from August to July. Without that timing shift, the growth in outlays this July would have totaled $46 billion (or about 18 percent). TARP spending of $22 billion was the largest contributing factor to that increase. In addition, unemployment benefits and Medicaid outlays rose by $8 billion and $5 billion, respectively, boosted by stimulus spending from ARRA.

For the first 10 monthsof the fiscal year, receipts from individual income and payroll taxes are down by almost $200 billion (or 12 percent) compared with collections during the same period last year.Receipts from corporate income taxes have declined by57 percent. Spending for unemployment benefits is more than 2 1/2 times what was spent in the first 10 months of 2008, because of higher unemployment and legislated increases in the amount and duration of benefits.Medicaid outlays have risen by 24 percent, largely because of a provision in the stimulus bill that temporarily increases the federal government's share of that program's costs.