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Economy in Brief

U.S. Budget Deficit Continued to Shrink
by Tom Moeller December 12, 2006

The U.S. federal government's budget deficit in November fell to $75.6B versus a deficit of $83.1B last November. That pulled the figure for the first two months of FY07 to $124.9B against $130.3B during last fiscal year's first two months. The Congressional Budget Office expects the FY 2007 deficit to total $286B, up slightly from last year's deficit of $247.7B.

As a percentage of GDP, the U.S. budget deficit fell last year to 1.9% from 2.6% in FY2005.

Net revenues grew 8.8% y/y during the first two months of FY07. Individual income tax receipts (44% of total receipts) grew 11.8% as withheld taxes rose 9.7% due to employment growth and non-withheld taxes (primarily on capital gains) surged 45.8%. Corporate income taxes (13% of total receipts) surged 21.5% as corporate profits grew. Estate & gift taxes fell 1.1% while higher employment levels raised social insurance & retirement receipts by 4.2%.

U.S. net outlays grew 4.7% during this fiscal year's first two months versus last year. Defense spending (19% of total outlays) grew 13.6% and Medicare expenditures (12% of outlays) surged 42.5%. Social security spending (21% of outlays) rose 6.0% but the recent bond market rally dropped the government's interest expense by 11.0% y/y.

Middle-Income Tax Rates: Trends and Prospects from the Federal Reserve Bank of Kansas City can be found here.

US Government Finance   November October Y/Y FY 2006 FY 2005 FY 2004
Budget Balance -$75.6B -$49.3B -$83.1B
-$247.7 -$318.7B -$412.7B
Net Revenues $145.9B $167.7B 5.1% 11.8% 14.5% 5.5%
Net Outlays $221.5B $217.0B -0.2% 7.4% 7.8% 6.2%
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