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Monthly Budget Review

The Monthly Budget Review

December 2008

“CBO estimates that the Treasury will report a federal budget deficit of $408 billion for the first two months of fiscal year 2009, $253 billion higher than the deficit recorded through November of last year. This estimate includes $191 billion disbursed for the Troubled Assets Relief Program (TARP) during the first two months of the fiscal year.” CBO reports.

WHAT HAPPENED?

CBO accounts for the leap in deficit to the accounting method used to include the spending thus far for the Troubled Assets Relief Program. The TARP is the program that would spend the $700 billion provided through the Emergency Economic Stabilization Act Passed by Congress in October 2008. If the spending was accounted for differently, the total deficit would come to $267 billion through November 2008. The TARP spending, although it is an outlay of tax dollars, also produces valued assets the amount of which are not recorded.

WHERE THE MONEY CAME FROM

“Receipts of individual income taxes fell by about $14 billion (or 9 percent), and corporate income tax receipts fell by about $7 billion. Social insurance (payroll taxes) grew by $5 billion (or less than 4 percent). Other sources of receipts fell by a combined $3 billion, consisting mainly of declines in excise tax receipts and earnings of the Federal Reserve. The combined amount of individual income and payroll taxes fell by about $9 billion (or 3 percent). Of the decline in those receipts so far this year, higher refunds of income taxes account for about $5 billion, with roughly one quarter of that due to stimulus payments. Withheld tax payments fell by about $2 billion (or 1 percent), although they would have registered small increases if not for effects of the calendar. Growth in withholding has slowed substantially since January; the contracting economy has caused wages and salaries to grow more slowly. Non-withheld income and payroll tax receipts fell by about $2 billion (or 11 percent) in October and November.”

“Diminishing corporate profits have continued to cause receipts from corporate income taxes to fall. Net corporate receipts in the first two months of the fiscal year fell by

about $7 billion (or over 85 percent), stemming from higher refunds of corporate taxes (up $4 billion or about 40 percent) and lower corporate tax collections (down $4

billion or about 20 percent). Net receipts fell from almost $9 billion in the first two months of fiscal year 2008 to $1 billion for the same period this year. December is the first month with significant amounts of quarterly payments of corporate income taxes.”

WHERE THE MONEY WENT

Outlays through November

“….outlays for net interest on the public debt fell by 20 percent (or $8 billion) through November because of falling short-term interest rates and lower payments for inflation-indexed securities.

Spending for the broad category of “other activities” grew rapidly in the first two months of the year, rising by $36 billion, or 29 percent, on an adjusted basis. About a third

of that growth was due to higher payments for deposit insurance, unemployment benefits, and food and nutrition services. Another $8 billion of the increase reflected a drop in the market value of assets held by NRRIT, which does not affect the government’s cash flows but is recorded in the budget on a mark-to-market basis each month. Spending for all other programs in this category was about 15 percent higher than in the same period last year.

The 8 percent growth in defense spending reflects two fewer work days than in the first two months of fiscal year 2008; adjusting for workdays and timing shifts, defense

outlays were 13 percent higher than in the same period last year. Outlays for the three largest entitlement programs—Social Security, Medicare, and Medicaid—rose by an average of 6 percent through November on an adjusted basis, slightly above the 5 percent growth averaged in fiscal year 2008 as a whole.”

This Report is revised from the original CBO report compiled by CBO’s Mark Booth, Chad Chirico, Barbara Edwards, and Kathy Gramp, and Camille Woodland.

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