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The Monthly Budget Review October 2006

The Congressional Budget Office (CBO) estimates the budget deficit to be near $250 billion at the close of the 2006 Fiscal Year on September 30, 2006. The amount is $68 billion less than the same period in 2005. The Bush administration, when proposing its FY 2007 budget, decided that the deficit was only relevant in the context of the percentage of the gross domestic product (GDP) that it represents. The current debt represents 1.9% of the GDP as opposed to 2.6 percent at the end of 2005. The GDP grew at 6.6%.

Although the debt as a percentage of the GDP is reduced, spending as a percentage of GDP has increased to 20.3% of GDP. Near average but a bit higher than the last five years when the percentage was 19.6%.

That is considered an improvement attributed to an economy that continues to produce revenue. Although government spending is increasing as well, it is not increasing as quickly as tax revenue.

WHAT HAPPENED?

The $54 billion surplus in September 2006 equaled $18 billion more than the surplus in September 2005. Both surpluses are attributed to an increase of tax revenues due to the quarterly filing in September. September 06 receipts were 12% higher than ’05. The CBO concludes that most revenue increases are the result of last years’ tax settlements and a new tax law that requires large business to accelerate some payments from 2007 into 2006. Non-withheld individual income taxes rose 18%, too, due to quarterly estimated tax returns.

Another factor influencing the revenue increases is due to the calendar that resulted in some October taxes being paid in September totaling an additional $15 billion shifted from October to September. On the spending side, legislation moved outlays for Medicare spending ($4 billion) from September to October (Fiscal Year 2007). Spending for student loans was added in September this year contrasting with March last year. The increase was $12 billion.

	Actual FY 2005	Prelim FY 2006	Estimated Change
Receipts	$2.153 trillion	$2.406 trillion	$253 billion
Outlays	$2.472 trillion	$2.656 trillion	$185 billion
Deficit	$-318 billion	$-250 billion	$+68 billion

WHERE THE MONEY CAME FROM

Source	Actual FY 2005	Prelim FY 2007	Percentage Change
Individual Income	$927 billion	$1.049 billion	+13.1%
Corporate Income	$278 billion	$354 billion	+27.1%
Social Insurance	$794 billion	$833 billion	+5%
Other	$154 billion	$170 billion	+10.8%
Total	$2.153 trillion	$2.406 trillion	+11.8%

The largest increases came from individual income taxes paid and social insurance taxes paid (Payroll taxes). Most gains in individual income taxes came in April and May while quarterly filings by individuals remained steady throughout the year’s quarters. Corporate income taxes continued with strong growth for this third year representing 2.7% of the GDP. A percentage total unsurpassed since 1978.

WHERE THE MONEY WENT

Category	Actual FY2005	Prelim FY2006	Actual Chnge	Adjst’d Chnge
Defense	$474 billion	$500 billion	+5.3%	+6.1%
Social Security Benefits	$514 billion	$545 billion	+6.0%	+6.2%
Medicare	$336 billion	$378 billion	+12.6%	+16.5%
Medicaid	$182 billion	$181 billion	-0.5%	-0.5%
Other Programs	$775 billion	$817 billion	+5.4%	+6.7%
Subtotal	$2.280 trillion	$2.420 trillion	+23.6%	+23.9%
Net Interest on Public Debt	$191 billion	$237 billion	+23.6%	+23.9%
Total	$2.472 trillion	$2.656 trillion	+7.5%	+8.7%

The CBO notes that flood insurance claims, disaster relief and other assistance in the aftermath of Hurricanes Katrina and Rita added $50 billion to 2006 spending totals resulting in an additional $45 billion in debt interest costs (24% increase). The debt was also increased due to higher interest rates and higher inflation.

Without the disaster payment increases spending for federal programs rose about 6%, a number somewhat lower than the average 8% increases between 2001 and 2005.

Medicare spending went up due to the President’s prescription drug benefit program. Usually showing an average of 9% growth as it did over the last five years, Medicaid actually spent a small bit less due to the transfer of prescription drug benefit spending from that program to the Medicare program.

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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