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Economy in Brief

U.S. Budget Deficit Grows Sharply With Recession & TARP
by Tom Moeller March 11, 2009

The U.S. government ran a budget deficit of $192.8 billion during February and for the first five months of this fiscal year the deficit swelled to $764.5B. Both figures are substantially higher than the deficits of $175.6B last February and $264.5B for the first five months of FY08. The latest figure came in slightly below Consensus projections for a February deficit of $203B.

Year-to-date the budget deficit is running at roughly 5.5% of GDP. The Congressional Budget Office's recent deficit estimate of $1.2 trillion for FY09 amounts to 8.3% of GDP. It assumes that revenues will fall 6.6% year-to-year and that outlays will increase 19.0%.

Net revenues during February fell 17.4% from February of last year and for the first five months of FY09 they were down 11.0% y/y. Individual income tax receipts fell 13.1 % y/y through February reflecting higher unemployment. Corporate tax receipts mirror the drying up of profitability and fell by nearly one-half. Growth in employment taxes dropped to 0.9%, the least since late 2003, and unemployment insurance tax receipts fell 9.9%. Real estate taxes fell 6.2% after 10.5% growth last year.

Swelled by TARP, U.S. government outlays surged by 32.0% from last fiscal year's first five months. Outlays under the Government's Troubled Asset Relief Program (TARP) amounted to $37.8B last month and for the first four months of the program totaled $280.3B. The U.S. Treasury has adopted the view that these TARP expenditures should be counted like any other spending. When the banks repay the Treasury, these funds will be counted as revenue. Accounted for in this way, TARP causes a surge in the budget deficit when the funds are distributed to the banks, but leads to a smaller deficit, or perhaps a surplus, when repayments are received.

Defense spending (19% of total outlays) rose 7.1%. Medicare expenditures (12% of outlays) increased by 10.9% and "income security" spending (11% of outlays) jumped 21.1% after 7.5% growth last year. Social security payments rose a steady 7.1% but net interest payments continued to fall by more than one-quarter with lower interest rates.

The Government's financial data are available in Haver's USECON database, with extensive detail available in the specialized GOVFIN.

The Economic Crisis and the Fiscal Crisis: 2009 and Beyond from Alan J. Auerbach, University of California, Berkeley, and William G. Gale, Brookings Institution, is available here.

US Government Finance   February January Y/Y FY 2008 FY 2007 FY 2006
Budget Balance -192.8B $-86.5B $-175.6B
-$454.8B -$161.5B -$248.2B
Net Revenues $87.3B $226.1B -17.4% -1.7% 6.7% 11.8%
Net Outlays $280.1B $131.3B -0.4% 9.1% 2.8% 7.4%
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