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Economy in Brief

Higher Receipts Lower U.S. Budget Deficit
by Tom Moeller October 16, 2006

The U.S. federal government's budget deficit for FY 2006 fell to $247.7B following deficits near $300B during 2005 and $400B during 2004. The full year figure compared favorably to the August estimate from the Congressional Budget Office of a $260B deficit. CBO expects the FY 2007 deficit to total $286B.

As a percentage of GDP, the U.S. budget deficit fell to 1.9% from 2.6% in FY2005 but may return to 2.5% during the current year.

Net revenues grew 11.8% during FY2006. Individual income tax receipts (44% of total receipts) registered 12.6% growth after a 14.6% surge the prior year. Withheld taxes rose 7.9% due to growth in employment, nearly double the 4.4% gain during the prior fiscal year, and that was up from 2.5% growth during FY2004. Non-withheld taxes (primarily on capital gains) surged 20.7%, slightly slower than the 31.9% gain during FY2005. Corporate income taxes (13% of total receipts) surged 27.2% as corporate profits grew. Estate & gift taxes increased by 12.6% while higher employment levels raised social insurance & retirement receipts by 5.5%.

As a percentage of GDP revenues rose to 18.1%, the highest level in five years.

U.S. net outlays grew 7.4% last year versus 7.8% growth during FY2005. Defense spending (19% of total outlays) grew 6.8%, down from 8.6% growth during FY2005. Medicare expenditures (12% of outlays) advanced 10.5%, about stable with the prior year's growth, and social security spending (21% of outlays) rose a diminished 4.8%. Higher interest rates boosted the government's interest expense by 23.2% y/y.

As a percentage of GDP outlays rose to 19.9%, up more than one percentage point since 2000.

The Budget Results for Fiscal Year 2006 from the U.S. Treasury Department can be found here.

CBO's baseline projections of the U.S. budget are available here.

US Government Finance   September August Y/Y FY 2006 FY 2005 FY 2004
Budget Balance $56.0B -$64.9B $35.2B
-$247.7 -$318.7B -$412.7B
Net Revenues $283.3B $153.9B 12.6% 11.8% 14.5% 5.5%
Net Outlays $227.3B $218.8B 5.0% 7.4% 7.8% 6.2%
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