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Monthly Budget Review

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The Monthly Budget Review

November 2009

The federal government recorded a total budget deficit of $1.4 trillion in FY 2009. The amount is about $960 billion more than the FY 2008 deficit. The percentage of the deficit of the GDP is 9.9%, up from 3.1% in 2008.

WHAT HAPPENED?

“The increase in the deficit of almost 7 percentage points of GDP from 2008 reflected a sharp drop in revenues and a substantial increase in spending. Receipts in 2009 tumbled to $2,105 billion, a decrease of $419 billion, or 17 percent, from 2008. That yearover-

year decline follows a small drop in revenues for fiscal year 2008 and is the largest annual percentage decline in revenues in more than seven decades. Total revenues fell from 17.5 percent of GDP in 2008 to 14.8 percent of GDP in 2009; individual income tax receipts showed the largest decrease—from 7.9 percent to 6.4 percent of GDP,” CBO explained.

WHERE THE MONEY CAME FROM

(In billions of dollars)

The Treasury Department reported that individual income tax receipts showed the largest decline in dollar terms from 2008 to 2009—$230 billion (20 percent)—while social insurance receipts fell by about $9 billion (1 percent). About $142 billion of that combined decline resulted from a 28 percent drop in nonwithheld receipts—about two-thirds stemming from lower payments of 2008 taxes, and the remainder reflecting

lower estimated payments of 2009 taxes, primarily due to effects of the recession on nonwage income.

Withheld taxes also fell, but not as much. Throughout the fiscal year, withholding of individual income and payroll taxes was lower than in the previous year,  causing a total decrease in withholding of $117 billion (7 percent). The decline resulted from the weakened economy, small year-end bonuses, and tax reductions enacted in the American Recovery and Reinvestment Act of 2009 (ARRA). Offsetting some of those declines

was a reduction of $21 billion in refunds of individual income taxes.

Net receipts from corporate income taxes showed the largest drop in percentage terms—almost 55 percent—falling from $304 billion in 2008 to $138 billion in 2009. That decline continues the pattern that began in the middle of 2007 and can be attributed to continued weakness in corporate profits, legislation enacted during the year (most notably provisions that allow for more rapid depreciation of assets), and the ability of firms to

use current-year losses to reduce tax liabilities from previous years. From 2003 to 2006, corporate receipts accelerated sharply, rising by nearly 40 percent annually, on average; corporate receipts are now almost back down to the 2003 level.

WHERE THE MONEY WENT

(In billions of dollars)

Outlays rose by 18 percent in 2009, the fastest rate of growth since 1975. Three initiatives—the Troubled Asset Relief Program (TARP), net cash infusions for

Fannie Mae and Freddie Mac, and ARRA—drove that growth, adding $353 billion to outlays in 2009, or 2.5 percent of GDP. All other federal spending accounted

for 22.2 percent of GDP in 2009, up from 20.6 percent in 2008.

Stimulus spending from ARRA totaled $108 billion in 2009—$32 billion for Medicaid, $22 billion for unemployment benefits, and $54 billion for other programs and activities.

Defense outlays grew by 7 percent ($42 billion) in 2009, well below last year’s growth rate of 12 percent (adjusted for shifts in the timing of certain payments).

Military spending represented 4.5 percent of GDP in 2009 compared with an average of 3.8 percent over the previous five years. Spending on procurement rose by10 percent, the third double-digit increase in a row.

CBO estimates that outlays associated with operations in Iraq and Afghanistan accounted for nearly one quarter of total military spending in 2009, about the same portion estimated for 2008.

Payments for unemployment benefits in 2009 were more than 2½ times the amount paid in 2008, an increase of $73 billion. That jump was caused by substantially greater unemployment and increased benefits. Conversely, spending for net interest on the

public debt decreased by $58 billion (from 1.8 percent of GDP in 2008 to 1.4 percent in 2009) because of lower short-term interest rates and lower costs for inflation-indexed securities.

Spending in the category “Other Activities” increased by 11 percent, rising by $100 billion from 2008. Taken together, outlays for those activities accounted for 6.9

percent of GDP in 2009, up from an average of 6.0 percent over the previous five years. Roughly half of that increase resulted from spending under ARRA, primarily for the State Fiscal Stabilization Fund, food and nutrition programs, and one-time payments to

Social Security beneficiaries.

FISCAL YEAR 2010:

ESTIMATES FOR OCTOBER

In Billions of Dollars

This Report is a revised version of the original CBO report compiled by CBO’s Barbara Edwards, Kathy Gramp, Joshua Shakin, and Camille Woodland

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