The federal government incurred a budget deficit of $434 billion in the first four months of fiscal year 2010, CBO estimates in its latest Monthly Budget Review, almost $40 billion more than the shortfall recorded in the same period last year. Although spending is lower than it was at this time last year, the deficit is still higher because revenues have fallen by 11 percent. Assuming that no other legislation affecting spending or revenues is enacted, CBO expects that the federal government will end fiscal year 2010 with a deficit of about $1.35 trillion, slightly below the $1.4 trillion deficit recorded in 2009. (See The Budget and Economic Outlook: Fiscal Years 2010 to 2020 for more details on CBOs estimate for 2010 and its most recent 10-year projections.)
Spending for the first four months of fiscal year 2010 was $44 billion (or 4 percent) lower than it was last year through January. Spending for the Troubled Asset Relief Program decreased by $105 billion and net spending by the Federal Deposit Insurance Corporation was down by $44 billion because of higher receipts from the prepayment of insurance premiums. Increased spending for other programs offset part of that reduction. Outlays in the rest of the budget are up by $127 billion (or 12 percent), after adjusting for shifts in the timing of certain payments.
Specifically, spending for unemployment benefits rose by $28 billion, doubling the spending in the first four months of last year, because of continued high unemployment and the payment of extended benefits. Medicaid spending rose by $18 billion (or 25 percent). A provision of the American Recovery and Reinvestment Act (ARRA) that increased federal payments to states for Medicaid accounted for about $13 billion of that growth. That legislation also resulted in significant increases in spending by the Department of Education and for food and nutrition assistance. Social Security benefit payments also rose by $18 billion (or 9 percent). A large cost-of-living increase provided in January 2009 combined with rising numbers of recipients fueled that increase. Adjusted for timing shifts, Medicare spending rose by $7 billion (or 5 percent). Outlays for net interest on the public debt grew by $20 billion, mostly because of higher costs for inflation-indexed securities.
Receipts for the first four months of fiscal year 2010 were about $83 billion (or 11 percent) lower than receipts during the comparable period last year. Nearly two-thirds of that decline stems from lower withholding from employees paychecks for income and payroll taxes. The $50 billion (or 8 percent) drop in withholding results primarily from the Making Work Pay credit enacted in ARRA and from lower wages and salaries. Nonwithheld receipts, which largely reflect nonwage income, are also downby about $14 billion (or 16 percent). Net corporate receipts declined by $18 billion (or 34 percent), because of a combination of higher refunds and lower payments of estimated taxes. The decline in net corporate receipts can be attributed to weak corporate profits and the effects of recent legislation that extended the period over which corporations can apply current-year losses to offset income in previous years.
In contrast, the Treasurys receipts from the Federal Reserve have grown by about $13 billion, reflecting a shift in the Feds portfolio to longer-term, riskier, and thus higher-yielding investments in support of the housing market and the broader economy.