Monthly Budget Review for February 2013

The federal budget deficit was $495 billion for the first five months of fiscal year 2013, $86 billion less than the shortfall recorded for the same period last year, CBO estimates. If lawmakers enacted no further legislation affecting spending or revenues, the federal government would end fiscal year 2013 with a deficit of $845 billion, by CBO’s estimate, compared with $1.1 trillion in 2012. (For more details about CBO’s most recent budget projections, see The Budget and Economic Outlook: Fiscal Years 2013 to 2023.

Unusual circumstances have affected the year-over-year difference for the first five months. Outlays from October through February in fiscal year 2012 were particularly low because October 1, 2011, fell on a weekend, and about $31 billion in payments was shifted into the previous fiscal year. If not for those shifts, the deficit in the first five months of fiscal year 2012 would have been $116 billion more than the shortfall CBO estimates for the same period in fiscal year 2013. In the other direction, however, revenues so far this year have been boosted by a delay in the processing of tax refunds and by an increase in payments of estimated taxes that occurred because some people shifted income into calendar year 2012 in expectation of higher tax rates in 2013.

Total Receipts Were Up by 14 Percent in the First Five Months of Fiscal Year 2013

Receipts in the first five months of fiscal year 2013 totaled $1.0 trillion, CBO estimates, $122 billion more than those in the same period last year. Compared with receipts from October through February in fiscal year 2012:

• Individual income and payroll (social insurance) taxes together rose by $103 billion, or 14 percent. Taxes withheld from workers’ paychecks rose by $64 billion (or 9 percent); most of the gains came from a combination of higher wages and salaries, the expiration of the payroll tax cut in January, and increases beginning in January in tax rates on incomes above certain thresholds. Nonwithheld tax receipts for the first five months of the fiscal year rose by $15 billion (or 16 percent), mostly owing to a boost in estimated payments made in January brought about by taxpayers’ shifting of income from calendar year 2013 into late 2012 in anticipation of higher tax rates. Individual income tax refunds fell by $26 billion (or 25 percent), primarily because the enactment of tax legislation at the beginning of January delayed the Internal Revenue Service’s processing of 2012 income tax returns. Offsetting those gains was a $2 billion drop in receipts from unemployment taxes.
• Corporate income taxes increased by $11 billion (or 18 percent);
• Other revenues rose by $8 billion (or 10 percent).

Spending Was Less Than 1 Percent Higher When Adjusted for Timing Shifts

By CBO’s estimate, federal outlays totaled $1.5 trillion during the first five months of fiscal year 2013. Without shifts in the timing of certain payments, spending in that period would have been would have been less than 1 percent more than outlays during the same period in fiscal year 2012. (The year-over-year changes discussed below reflect adjustments to account for those shifts.)

For some major programs and activities, spending increased:

• Social Security, Medicare, and Medicaid—Expenditures for each of the three largest entitlement programs were greater than those in the same period last year. Outlays for Social Security benefits increased by the largest amount—by $19 billion (or 6 percent). Spending for Medicare rose by $13 billion (or almost 7 percent), and outlays for Medicaid rose by $9 billion (or more than 9 percent).
• Agriculture—Spending increased by $13 billion, primarily because of higher crop insurance payments owing to drought.
• Disaster Assistance—Spending for the Federal Emergency Management Agency increased by $6 billion, mostly because of Hurricane Sandy.

In contrast, outlays decreased for some major categories of spending:

• Defense—Outlays fell by $14 billion (or 5 percent).
• Unemployment benefits—Spending declined by $10 billion (or almost 24 percent), mostly because fewer people have been receiving benefits in recent months.
• Fannie Mae and Freddie Mac—Net payments to the government-sponsored enterprises were $14 billion less than those made at the same time last year.
• Housing programs—Outlays for housing programs declined by $6 billion.

The Monthly Budget Review was prepared by Barbara Edwards, David Rafferty, Dawn Sauter Regan, and Joshua Shakin.