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Monthly Budget Review

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The Monthly Budget Review

September 2008

The federal budget deficit was $486 billion in the first 11 months of FY 2008 beginning October 1, 2007. The amount is $212 billion over the shortfall in the same time period last fiscal year.

CBO estimates that the government will show a surplus in September due to quarterly payments of income taxes lowering the end of fiscal year deficit to about $400 billion.

Budget totals through August

WHAT HAPPENED?

The treasury reported a deficit of $103 billion in July because more tax rebates were classified by Treasury as offsets to revenues rather than as outlays. The August deficit was $115 billion or $2 billion less than the shortfall last year. Because some payments were shifted to September because of the calendar, the deficit would have been $24 billion over that of last year. August receipts were about $10 billion lower than August 2007 and individual withholding declined by $4 billion due to two fewer business days in August. The tax rebates raised outlays by $1 billion higher than last August’s amount.

As the US dollar strengthens receipts from the Federal Reserve were about $2 billion lower because the value of foreign holdings by the Fed were reduced as the dollar strengthened. Lower interest rates also affected the receipts.

WHERE THE MONEY CAME FROM

Receipts through August

Receipts were about 1.4% lower than the same period last year. Individual tax receipts showed a 3% decline while social insurance (payroll taxes) grew about 4%. Corporate taxes fell by $43 billion close to 15%. Withheld taxes were 3.5% higher than last year at the time showing a rate of growth that is about half the 7% growth from 2006 and 2007. CBO notes that those particular taxes reflect growth in wages or salaries.

Non-withheld receipts were about 55 higher than last year. CBO notes that those receipts reflect personal income such as from partnerships, sole proprietorships, capital gains, interest, dividends and retirement income.

The tax rebates pushed refunds to individual taxpayers up by 38% over the same period last year. $93 billion has been dispersed so far and %62 billion was recorded by the Treasury as reduction in revenues. The remaining $32 billion is marked as outlays because those rebates exceeded the taxes owed by individuals in 2007.

Corporate taxes fell by about $43 billion or 15% over the last 11 months reflecting declining profits and enhanced depreciation allowances passed by Congress in the rebate legislation recently passed.

WHERE THE MONEY WENT

Outlays through August

CBO concludes that outlays were around 8% higher than the same period last year. Defense spending grew by almost 11%. Defense growth over the past two years has stood around 7%. Entitlements, on the other hand, grew only by 5% after adjusting for shifts in payment schedule, about 2% less than the average growth of that category over the past two years.

The impact of 432 billion sent for tax rebates and now $17 billion spent to cover failed financial institutions continues to impact outlays. CBO notes that most of the $17 billion to cover those banks can be recouped in the future is the FDIC liquidates the assets held by those banks and collects higher FDIC insurance premiums.

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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