Monthly Budget Review for July 2018

The federal budget deficit was $682 billion for the first 10 months of fiscal year 2018, CBO estimates, $116 billion more than the shortfall recorded during the same period last year. Revenues and outlays were 1 percent and 4 percent higher, respectively, than in the same period in fiscal year 2017.

As was the case last year, this year’s outlays were affected by shifts in the timing of certain payments that otherwise would have been due on a weekend. If not for those shifts, outlays and the deficit through July would have been larger, by roughly $40 billion, both this year and last year—but the year-to-year changes would not have been very different.

Projected Outcomes for 2018

CBO expects that the deficit, receipts, and outlays for fiscal year 2018 will be largely consistent with amounts in its adjusted April baseline, which were reported in An Analysis of the President’s 2019 Budget in May 2018. At that time, CBO projected a deficit of $793 billion, outlays of $4,131 billion, and receipts of $3,339 billion.

Payments of individual income taxes received in April, mainly for 2017 taxes, were larger than CBO expected, whereas corporate income tax receipts have been smaller than anticipated. Although some provisions of last year’s major tax legislation (Public Law 115-97) affect receipts, the timing of those effects is highly uncertain. The amount collected in recent months might not indicate the amount that individuals or businesses ultimately will pay for tax year 2018.

In keeping with historical patterns, and accounting for shifts in the timing of certain payments, outlays so far are consistent with CBO’s May 2018 projection: Through the first 10 months of the fiscal year, federal spending totals about ten-twelfths of the amount that CBO projected for 2018.

Total Receipts: Up by 1 Percent in the First 10 Months of Fiscal Year 2018

Receipts totaled $2,766 billion during the first 10 months of fiscal year 2018, CBO estimates—$26 billion more than the amount received during the same period last year. The net increase resulted from changes in collections from the following sources, according to CBO’s estimates:

• Individual income and payroll (social insurance) taxes together rose by $105 billion (or 5 percent).
  • Amounts withheld from workers’ paychecks rose by $32 billion (or 2 percent). That change largely reflects increases in wages and salaries that were partly offset beginning in February by a decline in the share of income withheld for taxes. In January, the Internal Revenue Service issued new withholding tables to reflect changes made by P.L. 115-97 that took effect at the beginning of the current calendar year. All employers were required to begin using the new tables by February 15, 2018.
  • Nonwithheld payments of income and payroll taxes rose by $79 billion (or 16 percent). Most of that increase occurred in April, when taxpayers made their final payments of taxes for 2017.
  • Individual income tax refunds rose by $6 billion (or 2 percent), reducing net receipts.
• Corporate income taxes fell by $66 billion (or 28 percent), reflecting payments for the 2017 and 2018 tax years. About one-third of the decline occurred in June. Payments received in June were predominantly estimated payments for tax year 2018, when several provisions of P.L. 115-97 took effect, including the new lower corporate tax rate and the expanded ability to immediately deduct the full value of equipment purchases.
• Revenues from other sources fell by $13 billion (or 6 percent), largely because of reduced collections of fees and fines.

Total Outlays: Up by 4 Percent in the First 10 Months of Fiscal Year 2018

Outlays in the first 10 months of fiscal year 2018 were $3,448 billion—up by $143 billion (or 4 percent) from the same period last year, CBO estimates.

The largest increases were in the following categories:

• In total, spending for the three largest mandatory programs increased by 4 percent:
  • Outlays for Social Security benefits rose by $34 billion (or 4 percent), because of increases both in the number of beneficiaries and in the average benefit payment.
  • Medicare spending increased by $15 billion (or 3 percent) because of increases both in the number of beneficiaries and in the amount and cost of services. The increase in spending was partly offset because reconciliation payments typically made to Medicare Advantage plans in July were accelerated to June this year. Reconciliation payments are made annually to account for unanticipated spending increases in the previous calendar year.
  • Medicaid outlays rose by $10 billion (or 3 percent), largely because new enrollees were added through expansions of coverage authorized by the Affordable Care Act.
• Outlays for net interest on the public debt increased by $48 billion (or 19 percent), partly because of a higher rate of inflation. To account for inflation, the Treasury Department adjusts the principal of its inflation-protected securities each month by using the change in the consumer price index for all urban consumers that was recorded two months earlier. That adjustment was $33 billion in the first 10 months of fiscal year 2017 but $57 billion so far in the current fiscal year. The remaining increase reflects higher interest rates and larger debt in the first 10 months of 2018.
• Spending for military programs of the Department of Defense rose by $28 billion (or 6 percent).
• The government received $22 billion less in total payments from Fannie Mae and Freddie Mac, resulting in higher outlays (included in “Other” in the table below).
• Outlays of the Department of Homeland Security (included in “Other” below), increased by $19 billion (or 49 percent), largely because of activities related to disaster relief.

In contrast, outlays for the Department of Education (included in “Other” below) fell by $43 billion (or 46 percent) because the department made a downward revision of $9 billion to the estimated net subsidy costs of loans and loan guarantees issued in prior years—a change very different from last year’s $39 billion upward revision. If the effects of those revisions were excluded, outlays for the department for the first 10 months of the fiscal year would have risen by $5 billion (or 10 percent).

For other programs and activities, spending increased or decreased by smaller amounts.

Estimated Deficit in July 2018: $75 Billion

CBO estimates that the federal government incurred a deficit of $75 billion in July 2018—$32 billion more than the shortfall in July 2017. As was the case last year, this year’s July outlays were affected by shifts in the timing of certain payments that otherwise would have been due on a weekend. If not for those shifts, outlays and the deficit in July would have been greater, by roughly $45 billion, both this year and last year—but the month-to-month changes would not have been very different.

CBO estimates that receipts in July 2018 totaled $225 billion—$7 billion (or 3 percent) less than those in the same month last year. Individual income and payroll taxes dropped by $1 billion, on net. Withholding of those taxes dropped by $1 billion because the share of wages withheld for taxes was lower, CBO estimates, in keeping with changes made by P.L. 115-97. That decline would have been larger except that July 2018 had one more business day than July 2017. Corporate revenues declined by $4 billion and remittances from the Federal Reserve declined by $2 billion.

Total spending in July 2018 was $301 billion, CBO estimates—$26 billion more than the sum in July 2017. The largest changes were as follows:

• Net interest on the public debt rose by $10 billion (or 38 percent).
• Social Security benefits rose by $4 billion (or 5 percent).
• Spending for military programs of the Department of Defense rose by $3 billion (or 8 percent).

Spending for other programs and activities increased or decreased by smaller amounts.

Actual Deficit in June 2018: $75 Billion

The Treasury Department reported a deficit of $75 billion for June—the same as CBO estimated last month, on the basis of the Daily Treasury Statements, in the Monthly Budget Review for June 2018.