September Monthly Budget Review

September 8, 2009

Today CBO released its estimates of federal revenues and outlays for the first 11 months of fiscal year 2009. The federal budget deficit through August was almost $1.4 trillion, CBO estimates, close to $900billion greater than the deficit recorded through August 2008. Outlays were $518 billion (or 19 percent) higher and revenues $365 billion (or 16 percent) lower than the amounts recorded during the same period last year.

The estimated deficit reflects outlays of about $174 billion for the Troubled Asset Relief Program (TARP), recorded on a net-present-value basis adjusted for market risk, and net cashoutlays of $83 billion in support of Fannie Mae and Freddie Mac. CBO believes that Fannie Mae and Freddie Mac should now be considered federal operations and that the full scope of their activities should be incorporated in the federal budget. The Monthly Treasury Statements,however, are only recording the cash infusions from the Treasury (net of receipts)as federal outlays. CBO estimates that spending increases and revenue reductions stemming from the American Recovery and Reinvestment Act of 2009 (ARRA) have totaled more than $150 billion so far this year (excluding the impact on the budget from ARRAs effects on the economy).

CBO estimates that receipts were about $11 billion (or 7percent) lower in August 2009 than they were in August 2008, marking the 16th consecutive month in which receipts were lower than those in the same month of the previous year. Withholding for income and payroll taxes declined by about $10 billion (or 7 percent) compared with August 2008, accounting for nearly all of the total decline. CBO estimates that more than half of that decline resulted from provisions in ARRA, primarily the Making Work Pay tax credit. For the fiscal year to date, withholding is down by about 6 percent, primarily because of the recession's effect on wages and salaries and lower effective tax rates on that income.

Outlays were $6 billion lower in August than in the same month last year; however, spending compared to last year would be greater if adjustments were made to account for the different timing of certainbenefit payments. (For example, because August 1, 2009, fell on a weekend, payments that would have been made in August were instead made at the end of July.) Without those shifts, outlays would have been about $40 billion (or 16 percent) higher than in August 2008.

CBO recently issued new estimatesofthe budget outlook for 2009. Counting Fannie Mae and Freddie Mac in the budget, CBO estimates that the deficit for 2009 would total about $1.6 trillion. If those GSEs are excluded from the budget and only payments to them from the Treasury and associated dividend receipts are counted (as has been the case in the Treasury statements thus far), the recorded deficit will be approximately $1.4 trillion, CBO estimates. Additional information about those estimates can be found in The Budget and Economic Outlook: An Update.