November Monthly Budget Review

December 4, 2009

The federal budget deficit was $292 billion for the first two months of fiscal year 2010, CBO estimates in its latest monthly budget review, about $11 billion greater than the shortfall recorded through November of last year. Although spending related to turmoil in the financial markets was sharply reduced compared with that in the first two months of last year, the deficit is higher because of increased spending on unemployment benefits and certain other entitlement programs and reduced individual income tax receipts.

The federal government recorded $84 billion in spending for the Troubled Asset Relief Program (TARP) and for payments to Fannie Mae and Freddie Mac in the first two months of fiscal year 2009, but recorded only $2 billion for those purposes so far this year. Excluding spending for the TARP, Fannie Mae, and Freddie Mac, the deficit during the first two months of fiscal year 2010 was over $90 billion greater than the shortfall recorded during the same period last year.

Outlays

By CBO's estimate, spending for the first two months of fiscal year 2010 totaled $559 billion, down $31 billion (or 5 percent) from last year. However, excluding outlays for the TARP and net cash infusions for Fannie Mae and Freddie Mac, spending in 2010 rose by $51 billion (or 10 percent). Driving that increase are additional outlays for Social Security benefits, Medicaid, Medicare, and unemployment benefits.

Specifically, Social Security benefits rose by $11 billion (or 10 percent). The number of recipients grew as the first of the baby boomers begin to collect benefits; in addition, the average benefit has risen significantly because of the large cost of living increase (5.8 percent) that was effective in January 2009. Medicaid spending grew by $9 billion (or 25 percent). Spending from the American Recovery and Reinvestment Act (ARRA) temporarily increased the share of Medicaid paid by the federal government, accounting for around two-thirds of the year-over-year increase in federal Medicaid spending. Medicare payments rose by $7 billion (or 11 percent), resulting from noticeably higher spending in Medicare's prescription drug program. Outlays for unemployment benefits through November more than doubled compared with spending last year. The additional $14 billion in payments reflects higher unemployment and legislated increases in both the amount and duration of benefits.

Revenues

In the first two months of this fiscal year, revenues were about $42 billion (or 14 percent) lower than they were in 2009. The three primary sources of receipts showed declines relative to last year: Individual income taxes decreased by $37 billion (or 26 percent), corporate income taxes fell by $10 billion, and social insurance taxes fell by about $1.5 billion (or 1 percent). Offsetting those declines was an increase of $7 billion in receipts from the Federal Reserve, primarily because of a shift in its portfolio to higher-yielding investments.