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Monthly Budget Review November 2005

The federal government incurred a deficit of about $130 billion in the first two months of fiscal year 2006 (October-November), CBO estimates—approximately $14 billion more than the shortfall recorded during the same period last year. The higher deficit thus far has occurred because spending has increased nearly twice as much as revenues have. Such a disparity is not likely to persist over the subsequent 10 months, however. CBO will issue new estimates for 2006 and baseline projections for the 2007-2016 period in late January.

The Treasury reported a deficit of $47 billion in October, The deficit in November was about $82 billion, CBO

estimates, $25 billion more than the shortfall incurred in the same month last year.

WHERE DID THE MONEY COME FROM?

CBO estimates that receipts in the first two months of fiscal year 2006 were about 6 percent higher than in the

same period last year. Receipts from withheld individual income taxes and social insurance taxes accounted for

most of the increase.

Net corporate income tax receipts were about $1 billion (or 14 percent) lower in the first two months of 2006,

CBO estimates. However, they would have been higher than last year’s amounts if receipts in October 2004 had

not been increased by about $4 billion because of legislation that allowed firms to delay payments normally

due in September.

RECEIPTS THROUGH NOVEMBER

(Billions of dollars)

Major Source FY2005 FY2006 Change

Individual Income 122 134 9.0

Corporate Income 10 9 -13.5

Social Insurance 114 120 5.0

Other 25 26 4.2

Total 271 288 6.1

WHERE DID THE MONEY GO?

Outlays for nondefense programs (excluding net interest on federal debt held by the public) were 11 percent higher than in the first two months of 2005, driven in part by an $11 billion (or almost fivefold) increase in spending by the Department of Homeland Security for flood insurance and disaster relief. In addition, outlays for the three largest entitlement programs—Social Security, Medicare, and Medicaid—grew by an average of 7 percent (on an adjusted basis) through November, slightly faster than their 6.5 percent average increase in 2005.

Outlays for net interest also grew rapidly in the first two months of 2006, increasing by 38 percent relative to the

same period last year. About half of that rise reflected higher rates of inflation, which affect the amount paid on

inflation-indexed Treasury securities. The rest of the increase resulted from higher short-term interest rates and

growing debt.

OUTLAYS THROUGH NOVEMBER

(Billions of dollars)

Major Category FY2005 FY2006 Actual Adjusted

Defense—Military 73 82 12.3 5.0

Social Security

Benefits 83 87 5.8 5.8

Medicare 52 53 1.2 9.6

Medicaid 29 31 6.4 6.4

Other Programs

and Activities 121 124 3.2 15.7

Subtotal 358 378 5.6 9.3

Net Interest on the

Public Debt 29 39 37.9 37.9

Total 387 418 8.0 11.4