Monthly Budget Review

August 7, 2012


CBO estimates in its latest Monthly Budget Review that the Treasury Department will report a deficit of $975 billion for the first 10 months of fiscal year 2012, $125 billion less than the $1.1 trillion deficit incurred through July 2011.

Because October 1, 2011, occurred on a Saturday, roughly $31 billion in payments that would have been made in 2012 were made in 2011. In the absence of that shift, the deficit so far this year would have been about $93 billion smaller than last year’s figure at the same point in time.

Total Receipts Through July Were Up By 6 Percent

Receipts in the first 10 months totaled $2.0 trillion, $114 billion more than those in the same period last year. Compared with collections during the same period in fiscal year 2011:

  • Net receipts from corporate income taxes grew by $42 billion (or 30 percent). The growth in corporate receipts this year is largely attributable to changes in tax rules in recent years—in particular, the rules governing how quickly firms may deduct the cost of their investments in equipment.
  • Individual income tax receipts grew by $37 billion (or 4 percent). Growth in wages boosted withholding by $28 billion (or 3 percent). Nonwithheld payments also increased—by $11 billion (or 4 percent). Those gains were partially offset by an increase of $2 billion (or 1 percent) in refunds.
  • Receipts from social insurance taxes rose by $26 billion (or nearly 4 percent). Withholding for payroll taxes grew by about $14 billion (or 2 percent). The current reduction of 2 percentage points in the payroll tax was not in effect for the first quarter of fiscal year 2011 (October through December 2010); if it had been in effect during that time, the year-over-year increase in withholding for payroll taxes would have been $25 billion larger, or about 6 percent, CBO estimates. Collections of state unemployment taxes rose by $12 billion (or 26 percent) as states replenished their trust funds, which were depleted by the recent recession.
  • Receipts from other sources increased, on net, by about $9 billion. Collections from estate and gift taxes rose by $5 billion, as did receipts from excise taxes; together, revenues from customs duties and miscellaneous fees and fines also increased by $5 billion. Those gains were partially offset by a decline of $6 billion in receipts from the Federal Reserve, stemming from lower interest rates and a shift to lower-yielding, less risky assets in its portfolio, which resulted in smaller profits and hence smaller remittances to the Treasury.

Outlays Through July Were About The Same

Outlays through July totaled $3.0 trillion, $11 billion less than spending in the same period last year. Some of that decrease resulted from shifts in the timing of certain payments; it also reflects changes recorded in the budget for the estimated cost of credit activities in previous years (mainly those of the Troubled Asset Relief Program, or TARP). Excluding those revisions, and adjusted for the timing shifts, spending through July was about 1 percent less than outlays in the first 10 months of fiscal year 2011.

By CBO's estimates, outlays decreased for several major categories of spending:

  • Medicaid: Outlays fell by $27 billion (or 11 percent) because legislated increases in the federal share of the program’s costs expired in July 2011.
  • Unemployment benefits: Spending dropped by $22 billion (or 21 percent), mostly because fewer people have been receiving benefits in recent months.
  • Defense: Payments to military personnel (adjusted for shifts in the timing of payments) remained steady, while other defense outlays fell by about $14 billion (or 3 percent).
  • Education programs: Outlays dropped by $8 billion (or 14 percent), largely because of a decline in spending from the American Recovery and Reinvestment Act. (Most of that spending occurred before 2012.)
  • Making Work Pay tax credit: The refundable portion of this credit is recorded in the budget as an outlay. That spending declined by $14 billion because the credit expired last year.

For some programs, spending increased:

  • Troubled Asset Relief Program: Outlays rose by $63 billion, mainly because adjustments to the estimated cost of the program reduced outlays by $42 billion in 2011 and increased them by $21 billion in 2012.
  • Social Security: Payments for benefits increased by $35 billion (or 6 percent).
  • Medicare: Net spending was up by $17 billion (or 4 percent).