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Monthly Budget Review

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The Monthly Budget Review

July 2007

The Federal government incurred a deficit of $123 billion for the first nine months of FY 2007 (beginning October 1, 2006). The amount is $83 billion less than the shortfall in the previous fiscal year.

WHAT HAPPENED?

Revenues have risen by more than 7% and outlays have grown by 3%. CBO notes that both rates are much smaller that the same categories in fiscal years 2005 and 2006 when the average was about 13% for revenues and 8% for outlays.

June Estimates

Quarterly payment of individual income taxes and corporate income taxes historically account for surpluses in June. The increase this year is suspected to be from high unusually higher taxes paid due to back taxes from the prior year being paid. But outlays were greater this June than last year including growth in Social Security, Medicare, Medicaid and Defense spending.

Totals

WHERE THE MONEY CAME FROM

“About 85 percent of the revenue gain this year is attributable to increased receipts of individual income and payroll taxes, which combined grew by almost 8 percent.

Withholding accounts for most of the increases, up by $83 billion (or 7 percent). Nonwithheld tax receipts also showed significant gains, up by $48 billion (or 13

percent); those receipts are a mixture of estimated payments for calendar years 2006 and 2007, as well as final payments for calendar year 2006. Partially offsetting the gains in individual income and payroll tax collections were increases in refunds of individual income taxes of about $15 billion (or 8 percent).”

“The growth in receipts of income and payroll taxes combined has slowed in 2007,

from the average annual rate of 10.5 percent experienced  over the past two fiscal years.”

“Growth in corporate income taxes has slowed substantially throughout the year—from 22 percent in the first quarter to 11 percent in the second quarter and to about 4 percent in the past three months, relative to receipts in the corresponding period last year. During the 2004-2006 period, those receipts increased at an average annual rate of nearly 40 percent. Offsetting the increases in the three primary sources.”

“Offsetting the increases in the three primary sources of revenues is a decline of about $8 billion (or 14 percent) in excise taxes. That drop-off can be attributed largely to a

decrease in receipts from telephone excise taxes, the result of court rulings that caused both a permanent reduction in the tax and refunds of some of the past taxes paid.”

WHERE THE MONEY WENT

Outlays were 2% higher than the same period last year but growth is lower due largely to the lower spending in the ‘Other’ category attributed to less spending fro flood insurance, disaster assistance and agriculture programs as well as higher receipts from Medicare premiums and auctions of the airwaves.

“Defense outlays increased by 6 percent over the nine month period, about the same rate of growth experienced in fiscal year 2006. That spending was up by 10 percent in the first three months of the year but grew by an average of about 4 percent during the second and third quarters. The differential was due largely to outlays for procurement and research and development, which surged by 19 percent in the first quarter but rose by about 6

percent over the subsequent six-month period.”

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

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