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Monthly Budget Review September, 2006

The Congressional Budget Office reports that the 11^th month of FY 2006 deficit reached $307 billion and that the number is $47 billion lower than the same period last year. CBO calculated that an anticipated surplus in September due to quarterly payments of estimated income taxes will further reduce the deficit to $260 billion.

WHAT HAPPENED?

Receipts in August were nearly $4 billion more than in August last year due to net income tax gains from delayed filings from firms affected by Hurricane Katrina. Withholding for income and payroll taxes showed no growth over the same period last year partly because there is one fewer Monday, the biggest withholding day.

Totals thru August	Actual 2005	Preliminary	Change
Receipts	$1.902 trillion	$2.123 trillion	$221 billion
Outlays	$2.256 trillion	$2.430 trillion	$174 billion
Deficit	$354 billion	$307 billion	$47 billion

Estimated outlays and receipts for August were reduced by $6 billion “to reflect a correction that the Treasury has apparently made in the amounts recorded since 2002. In recent years the amounts shown in the budget as income taxes withheld from Social Security checks were higher than the actual amounts withheld” and so overstated. The correction does not affect the overall budget deficit, the CBO noted.

WHERE THE MONEY CAME FROM

Source	Actual 2005	Preliminary 2006	% Change
Personal income	$830 billion	$932 billion	+12.3%
Corp. income	$208 billion	$268 billion	+28.8%
Social insurance	$727 billion	$768 billion	+5.8%
Other	$137 billion	$154 billion	+12.5%
Total	$1,902 trillion	$2.123 trillion	+11.6%

‘Withheld receipts of income and payroll taxes were $97 billion, or 7 percent, higher than in the same period last year. Those receipts tend to follow growth in wages and salaries in the economy. Non-withheld receipts of income and payroll taxes were $59 billion, or about 19 percent, higher than in the first 11 months of 2005. About two thirds of that growth occurred from March through May, reflecting payments made with tax returns for 2005. Corporate income tax receipts rose by about $60 billion, or 29 percent, through the first 11 months of fiscal year 2006. This year marks the third year in a row that corporate receipts have showed impressive gains, reflecting continued strength in corporate profits.”

WHERE THE MONEY WENT

Category	Actual 2005	Prelim 2006	Actual Change	Adjusted Chng
Defense	$428 billion	$453 billion	+6%	+6.7%
Social Security	$471 billion	$499 billion	+5.9%	+6.2%
Medicare	$303 billion	$349 billion	+15.3%	+16.6%
Medicaid	$167 billion	$167 billion	-0.1%	-0.1%
Other	$713 billion	$746 billion	+4.6%	+6.3%
Subtotal	$2.081 trillion	$2.214 trillion	+6.4%	+7.4%
Net interest on Public Debt	$175 billion	$216 billion	+23.5%	23.9%
Totals	$2.256 trillion	$2.430 trillion	7.7%	8.6%

CBO estimates that outlays were 7.7% higher than last year and spending rose 8.6%. the fastest growing segments is the net interest on the public debt due to rising interest rates and more debt. Over half of the increase in Medicare was due to the new prescription drug benefit program. The absorption of the prescription spending into Medicare resulted in flat Medicaid spending. Three quarters of the increase in ‘Other’ spending is related to Hurricane Katrina otherwise spending increases in that category would total only 2% thus far this fiscal year.

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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