April 8, 2010
The federal government incurred a budget deficit of $714 billion in the first half of fiscal year 2010, CBO estimates in its latest monthly budget review, about $67 billion less than the shortfall recorded in the same period last year. That improvement stems largely from a net decline of $223 billion in outlays for the Troubled Asset Relief Program (TARP), from $115 billion in outlays in the first six months of last year to net receipts (that is, negative outlays) of $109 billion so far this year. The amount this year is negative because the Treasury is expected to report a reduction of $114 billion in outlays for that program in March, reflecting a significant decline in its estimate of the net costs that will ultimately result from that program’s transactions. Also contributing to the smaller deficit so far this year was a $69 billion decline in spending for federal deposit insurance, reflecting in part the prepayments by financial institutions of future years’ assessments.
Spending other than that for the TARP and deposit insurance was $187 billion (or 11 percent) higher in the first six months of this year than during the same period last year. Outlays for several major entitlement programs have increased significantly: Spending for unemployment benefits rose by $39 billion (or 83 percent) because of high unemployment and the extension of eligibility for such benefits. Medicaid rose by $17 billion (or 15 percent). More than $10 billion of that growth stemmed from a provision in the American Recovery and Reinvestment Act (ARRA) that increased federal payments to states beginning in February 2009. Payments for Social Security benefits increased by $23 billion (or 7 percent) and outlays for Medicare rose by $12 billion (or 6 percent). Outlays for net interest on the public debt grew by $26 billion (or 31 percent) compared to the first six months of fiscal year 2009. That increase is largely attributable to adjustments for inflation to indexed securities, which were negative early last year. Spending has also risen for a variety of other programs, including food and nutrition assistance, the State Fiscal Stabilization Fund (created by ARRA), student financial aid, and veterans’ programs. In contrast, federal assistance to Fannie Mae and Freddie Mac has totaled about $34 billion less so far this year than last year at this time.
CBO estimates that total receipts were about $37 billion (or 4 percent) lower in the first half of this fiscal year than collections in the first half of 2009. Withheld income and payroll taxes declined by about $45 billion (or 5 percent), reflecting both lower wages and salaries and the impact of the Making Work Pay credit enacted in ARRA. Nonwithheld individual income and payroll taxes also declined---by about $14 billion (or 13 percent). Net corporate income tax payments were about $3 billion (or 5 percent) lower than in the first half of fiscal year 2009.
A $26 billion increase in receipts to the Treasury from the Federal Reserve partially offset the decline in other receipts. The unusual increase in receipts from the central bank resulted from the shift in the Federal Reserve’s portfolio to longer-term, riskier, and thus higher-yielding investments in support of the housing market and the broader.
The next several weeks will provide important information about receipts this year. Final payments for 2009 individual income tax returns are due this month, and individuals and corporations alike will make quarterly estimated payments of income taxes in April.