The federal government incurred a deficit of nearly $1.3 trillion in the first 11 months of fiscal year 2010, CBO estimates in its latest Monthly Budget Review—a total that is about $100 billion less than the shortfall recorded through August of last year. Outlays are about 2 percent less than they were in the first 11 months of 2009, whereas revenues have increased by 1 1/2 percent.
CBO recently released its latest annual budget estimates for 2010 and beyond in the Budget and Economic Outlook: An Update. CBO estimates that the deficit for 2010 will be about $70 billion below last year’s total, but will still exceed $1.3 trillion. Relative to the size of the economy, this year’s deficit is expected to be the second-largest shortfall in the past 65 years: At 9.1 percent of gross domestic product (GDP), that deficit will be exceeded only by last year’s deficit of 9.9 percent of GDP.
By CBO’s estimate, spending through August was $77 billion (or about 2 percent) less than during the same period last year. That decline includes a net reduction in outlays of about $373 billion for three items related to the financial crisis: the costs of the TARP (a reduction of $274 billion from 2009), payments to Fannie Mae and Freddie Mac (a drop of $42 billion), and federal deposit insurance (a decline of $57 billion). Excluding those three programs, outlays through August increased by $296 billion (or 10 percent) relative to spending in the same period last year. Slightly more than one-third of that increase stemmed from provisions in the American Recovery and Reinvestment Act (ARRA), the majority of which was for the State Fiscal Stabilization Fund and other Department of Education programs, additional unemployment benefits, refundable tax credits, and the federal share of Medicaid assistance.
Several major entitlement programs accounted for another one-third of the overall increase in spending. Social Security benefits increased by $34 billion (or 6 percent) and Medicare expenditures rose by $19 billion (or 5 percent). Excluding spending under ARRA, outlays for unemployment benefits were $35 billion higher and Medicaid spending was $12 billion higher than in the previous year. Outlays for net interest on the public debt were $24 billion (or 13 percent) higher than during the same period last year. Most of that growth reflects adjustments to the value of inflation-indexed securities.
Total receipts for the first 11 months were $29 billion (or 1 1/2 percent) higher than in the same period last year. Higher net corporate income taxes and receipts from the Federal Reserve have been partially offset by declines in individual income and payroll taxes. Corporate income taxes rose by $32 billion (or 30 percent) primarily because of higher taxable profits stemming from improved economic conditions and lower depreciation charges. With an increase of $41 billion, receipts from the Federal Reserve were more than double the amount received in the comparable period in 2009. The Federal Reserve’s higher remittances stem from a much larger portfolio and a shift to riskier and thus higher-yielding investments.
In contrast, combined receipts from individual income and payroll taxes declined by about $47 billion (or 3 percent) compared with receipts in the same period last year. Withheld income and payroll taxes fell by about $19 billion (or 1 percent), and nonwithheld receipts fell by about $37 billion (or 12 percent). In both instances, the declines occurred earlier in this fiscal year and were largely attributable to lower collections from tax liabilities incurred in 2009.
The Monthly Budget Review was prepared by Elizabeth Cove Delisle and Daniel Hoople of CBO's Budget Analysis Division, and by Barbara Edwards and Joshua Shakin of our Tax Analysis Division.