The Congressional Budget Office reports that "revenues and spending are running ahead of last year’s pace, up by about 15 percent and 7 percent, respectively. With robust growth in revenues in May and June, CBO now expects that the 2005 deficit will be significantly less than $350 billion, perhaps below $325 billion, assuming that no other legislation is enacted that affects spending or revenues."

What Happened?

The $35 billion deficit for May 2005 was $1 billion less than May 2004. June 2005 revenues were $21 billion, up 10 percent since June 2004.

WHERE DID THE MONEY COME FROM?

$12 billion came from the private sector businesses, "Net payments of corporate
income taxes, which grew by 27 percent, accounted for $12 billion of that increase," the CBO said.

$8 billion from the taxpayers, "Non-withheld payments by individuals, largely representing quarterly payments of income and payroll taxes, grew by 20 percent, or $8 billion. {Editor's note: Several sources indicate that 'quarterly payment of income...taxes' represents gains from investments}

"Receipts of individual income and payroll taxes from employer withholding (the method by which most receipts are transmitted to the Treasury) grew by 1 percent, or $1 billion.

"That month-over-month growth was reduced by the fact that the Memorial Day holiday in 2004 occurred on the last day of May, pushing roughly $5 billion in receipts into June 2004. Adjusted for the effect of the holiday, withholding in June was almost 6 percent higher than in June 2004."

"Social insurance receipts were about $39 billion, or 7 percent, higher in the first nine months of 2005 than in the
comparable period last year, primarily because of gains in withheld payroll taxes of about $34 billion, or 7 percent.
Total withholding, which also includes withheld individual income taxes, has grown by $65 billion, or 6 percent,
so far this year. Those gains generally result from increases in wages and salaries in the economy.
 

"The much slower growth in Medicaid outlays—3 percent through June—reflects the unusually high level of
spending that occurred in the first nine months of 2004 because of a temporary increase in the federal share of the
program’s costs. With those temporary payments excluded, Medicaid outlays through June were about 8 percent
higher than in the same period last year.

RECEIPTS

In Billions of Dollars

WHERE DID THE MONEY GO?

"Outlays were $18 billion larger this June than they were last June, CBO estimates. Spending for defense and net
interest on the public debt both grew by about $4 billion. Medicare outlays were up by about $3 billion, and Social
Security spending grew by $2 billion. Outlays this June also included more than $3 billion to reflect the Administration’s revised estimates of the subsidy cost of various loans and loan guarantees made in previous years."

"Outlays for other programs and activities grew by 6.9 percent through June—roughly double their rate of
growth in 2004. The Departments of Agriculture, Education, and Homeland Security have recorded the
largest increases; outlays for each of those agencies have increased by 20 percent or more through June.

"The fastest-growing category of spending is net interest on the public debt; it rose by $18 billion, or 14.5 percent,
through June. The increase in net interest payments was most pronounced in the third quarter, when costs jumped
by $12 billion, or 28 percent, compared with the same quarter last year. Higher short-term interest rates accounted
for much of that increase; growing federal debt and rising costs for inflation-indexed bonds also played a role.
 

"Social Security and Medicare payments have also been growing more quickly this year than last year, rising by
5.4 percent and 10.1 percent, respectively, through June after increasing by 4.5 percent and 8.5 percent in 2004.

OUTLAYS

In Billions of Dollars

CBO EXPLAINS.

"Higher individual income tax receipts accounted for more than half of the revenue growth in the first nine months of
the fiscal year; net collections from individuals were up by $105 billion, or about 18 percent. Almost two-thirds
of that increase, or $66 billion, resulted from higher receipts from non-withheld taxes, most of which were
recorded in April and May when taxpayers filed income tax returns for 2004.

"Net corporate income taxes grew by about $57 billion, or 41 percent, in the first nine months of the fiscal year.
Gross payments increased by $47 billion, or 27 percent, and refunds decreased by $11 billion, or 31 percent.
Corporate income tax payments have been strong throughout the fiscal year to date, a reflection of economic
activity in both 2004 and the first half of 2005.

"Changes in law, including the expiration of depreciation provisions enacted in 2002 and 2003, have contributed to the increase. With one of the quarterly estimated tax payments remaining in this fiscal year, CBO expects that corporate receipts will grow by 40 percent or more over the entire year.