CBO Estimates a $655 Billion Federal Budget Deficit for the First Five Months of 2010

March 4, 2010

CBO estimates, in its latest Monthly Budget Review, that the federal government incurred a budget deficit of $655 billion in the first five months of fiscal year 2010, about $65 billion greater than the shortfall recorded in the same period last year. Although spending related to turmoil in the financial markets was much lower than that in the first five months of last year, the deficit is higher because tax receipts are also lower and spending on unemployment benefits, interest on the public debt, and a variety of other programs has increased.

In total, spending for the first five months of fiscal year 2010 was essentially unchanged compared with the same period last year, CBO estimates. However, some payments were shifted because the scheduled payment dates occurred on weekends or holidays. Adjusted for those shifts, spending rose by 1.6 percent, or $22 billion. That growth occurred despite lower outlays in fiscal year 2010 for three financial assistance programs: the Troubled Asset Relief Program (down $105 billion) and the deposit insurance programs of the Federal Deposit Insurance Corporation (down $42 billion) and the National Credit Union Administration (down $18 billion).

All other spending was up by $188 billion, or 14 percent, after adjusting for shifts in payment dates. Specifically, spending through February for several large entitlement programs was noticeably higher than outlays during the same period last year. Spending for unemployment benefits increased by $33 billion (or 93 percent) because of high unemployment and the extension of eligibility for such benefits. Outlays for Medicaid rose by $19 billion (or 22 percent). About $16 billion of that increase stemmed from a provision in the American Recovery and Reinvestment Act that increased federal payments to states beginning in February 2009. Payments for Social Security benefits increased by $21 billion (or 8 percent). Adjusted for timing shifts, Medicare spending increased by $8 billion (or 5 percent).

Spending has also risen for education programs and food and nutrition assistance. In addition, outlays for net interest on the public debt have grown dramaticallyby 39 percent compared with the same five-month period last year. That increase is largely a result of adjustments for inflation to indexed securities, which were negative early last year.

Receipts during the first five months of fiscal year 2010 were about $65 billion (or 7 percent) lower than collections in the same period last year. Accounting for most of that decline was a $54 billion (or 7 percent) drop in withheld receipts, which resulted primarily from lower wages and salaries and the Making Work Pay Credit. Nonwithheld individual income and payroll taxes also declinedby about $14 billion (or 15 percent)primarily because payments of estimated taxes in January were relatively low. In addition, because of more refunds, net corporate income tax receipts were about $11 billion (or 20 percent) lower than they were from October through February of fiscal year 2009. The increase in refunds stems in part from weak profitability as well as from recent legislation that extended the period over which corporations could apply current-year losses to offset income in previous years. In contrast, payments to the Treasury from the Federal Reserve were up by $19 billion, reflecting a shift in the composition of the central banks holdings toward higher-yielding (and riskier) investments in support of the housing marke and the broader economy.