Monthly Budget Review
The budget deficit was about $1.1 trillion in fiscal year 2012. That is about $200 billion smaller than in 2011, but still ranks as the fourth-largest deficit as a share of GDP since WWII.
Last month, the Treasury Department reported that the federal government incurred a budget deficit of $1.1 trillion for fiscal year 2012—$207 billion less than that in 2011. Fiscal year 2012 marks the fourth consecutive year with a deficit above $1.0 trillion. As a share of the nation’s gross domestic product (GDP), the deficit declined—from 8.7 percent in 2011 to 7.0 percent in 2012—but it was still the fourth highest as a share of GDP since 1946.
Total Receipts Were Up by 6 Percent in Fiscal Year 2012 but Were Still Below Their Peak in 2007
The government’s receipts increased (in nominal terms) for the third consecutive year; still, they were 5 percent below their peak in 2007. Receipts rose from 15.4 percent of GDP in 2011 to 15.8 percent of GDP in 2012 but remained well below the 40-year average of about 18 percent of GDP.
Receipts in fiscal year 2012 totaled $2.4 trillion, $147 billion (or 6 percent) more than those in the same period last year. Compared with collections in fiscal year 2011, revenues from all major sources increased in 2012:
- Receipts from corporate income taxes rose by $61 billion (or 34 percent) and increased from 1.2 percent to 1.6 percent of GDP. The growth in corporate receipts—which accounted for about 40 percent of the increase in total revenues—resulted largely from changes in tax rules in recent years.
- Receipts from individual income taxes grew by $41 billion (or 4 percent)—holding at 7.3 percent of GDP in 2012. Withheld taxes rose by 3 percent; nonwitheld tax payments increased by 4 percent.
- Receipts from social insurance taxes rose by $27 billion (or 3 percent) but fell from 5.5 percent of GDP in 2011 to 5.4 percent of GDP. Most of the gain came from increases in withholding for payroll taxes and in receipts from unemployment insurance taxes (as states continued to replenish trust funds that were depleted by the recession).
- Receipts from other sources increased by $18 billion (or 9 percent), mainly because of higher collections of estate and gift taxes and excise taxes.
Excluding Shifts in the Timing of Certain Payments, Federal Spending Was About the Same in 2012 as in 2011
Outlays in fiscal year 2012 were $61 billion (or 1.7 percent) less than spending in the previous year. Federal spending has totaled between $3.5 trillion and $3.6 trillion in each of the past four years, and spending in 2012 was just slightly more than in 2009. As a share of GDP, outlays fell in 2012—to 22.8 percent, which was less than the 24.1 percent recorded in 2011 and 2010 but still above the 40-year average of 21.0 percent.
Excluding the shift to September 2011 of certain payments that ordinarily would have been made in October and the effects of prepayments in 2009 of deposit insurance premiums that otherwise would have been paid in 2011 and 2012, outlays were about the same in 2012 as in 2011. (The year-over-year changes discussed below exclude the effects of those shifts.)
In 2012, outlays decreased for several major categories of spending:
- Medicaid—Outlays fell by $24 billion (or 9 percent) because legislated increases in the federal share of the program’s costs expired in July 2011.
- Unemployment benefits—Spending dropped by $30 billion (or 24 percent), mostly because fewer people received benefits.
- Defense—Outlays fell by $19 billion (or 3 percent) after rising at an average annual rate of 6 percent over the past five years. Most ($17 billion) of that decline was attributable to the reduction in the number of U.S. Army personnel in Afghanistan and Iraq. Defense spending was 4.2 percent of GDP, down from 4.5 percent in 2011.
- Net interest—Despite the growing debt, spending for net interest on the public debt dropped by $8 billion (or 3 percent).
- The 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 in 2011.
For some major programs, spending increased:
- Troubled Asset Relief Program—Outlays recorded for this program rose by $62 billion, from a net receipt of $38 billion in 2011 to a positive outlay of $24 billion in 2012, mostly because of changes in the estimated cost of earlier transactions.
- Social Security and Medicare—Outlays for the two largest entitlement programs rose by $43 billion (or 6 percent) and $16 billion (or 3 percent), respectively. Social Security’s growth rate was similar to that in recent years; Medicare’s growth rate was significantly below the roughly 7 percent average annual rate for the past five years. Outlays for the two programs were just shy of 8 percent of GDP, slightly below their levels in 2010 and 2011.