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Monthly Budget Review September 2005

The Congressional Budget Office reports that the federal government ran a deficit of about $352 billion in the first 11 months of FY 2005 beginning October 1, 2004 through August 31, 2005. The estimated amount is $85 billion less than the same period last year.

The CBO mid-August prediction that the government would run a surplus in September because of quarterly payments of estimated income taxes that would bring the deficit down to $331 billion is now impacted by spending for hurricane Katrina and likewise by Hurricane Rita spending.

The storms timing at the end of the fiscal year will result in adding only a few billion to the deficit in FY 2005 but much more deficit spending is expected in FY 2006 beginning October 1, 2005.

Short of increased spending for hurricane relief and the potential for additional off-budget spending for wars (Although the Congress has made it clear that the last three years of financing the wars in Iraq and Afghanistan with off-budget supplemental spending bills as well as using Defense Department on-budget resources must end, supplemental spending is not off the table) the government continues to take in revenue that reduces the deficit over previous years. Unfortunately, the government is also spending more than it did in previous years. So, good budget news is not the production of true surpluses but rather the production of public debt, but just not as much as was produced the previous year.

Receipts in August 2005 exceeded prior year receipts by $230 billion and August 2005 outlays exceeded prior year outlays by $145 billion creating a surplus when comparing the two years of $85 billion. In another way of expressing it the difference between receipts and outlays in August 2004 was a negative or deficit of $437 billion. The difference in August 2005 is $352 billion. The difference is a plus $85 billion.

WHERE DID THE MONEY COME FROM?

Individual income taxes accounted for a 15.3 percent revenue increase over last year’s take. 2004 = $720 billion and 2005 = $830 billion.

Corporate income taxes accounted for a 41.6 percent increase over last year’s take 2004 = $147 billion and 2005 = $208 billion.

Payments to Social Security (Social Insurance) accounted for an 8.1 percent increase. 2004 = $672 billion and 2005 = $727 billion.

Other sources of revenue accounted for a 3.1 percent increase over last year. 2004 = $133 billion and 2005 = $138 billion.

Receipts Totals: through August FY 2004 $1.672 trillion, through August FY 2005 $1.903 trillion to equal a 13.8% increase in revenues.

WHERE DID THE MONEY GO?

Defense spending grew 7.4 %. $398 billion FY 2004 and $458 billion through August FY 2005.

Social Security benefits grew 5.5 %. $446 billion in FY 2004 and $471 billion through August FY 2005.

Medicare grew at 9.9%. $274 billion through August FY 2004 and $391 billion through August FY 2005.

Medicaid grew at 3.4%. $161 billion through August FY 2004 and $167 billion through August 2005.

Net Interest on the Public Debt grew 12.2 %. $155 billion through August FY 2004 and $175 billion through August FY 2005.

Other Programs and Activities grew 5.9 %. $675 billion through August FY 2004 and $714 billion through August FY 2005.

Total Outlays grew 6.9 %. $2.11 trillion through August FY 2004 and $2.255 trillion through August FY 2005. (Outlay growth without including net interest on the public debt showed a spending increase of 6.4 %.

BUDGET PROJECTIONS FOR 2005

In mid-August, CBO updated its estimate of the deficit for fiscal year 2005 to reflect legislative actions, economic developments, and other new information. At that time, CBO reduced its estimate of the 2005 deficit to $331 billion, largely because revenues were substantially higher than had been projected in March. The devastation wrought by Hurricane Katrina will affect federal spending and revenues in September, but with only one month left in the fiscal year, the net impact on the 2005 deficit is likely to be small. Although additional funds have been appropriated and the Federal Emergency Management Agency is providing substantial aid to victims of the storm, many of the bills will be paid in October or later. Other effects in September will include delays in the collection of estimated taxes and reduced spending for some federal benefit programs because of delays in submitting or processing claims.

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