US Posts First Budget Surplus In 42 Months, And It Is Less Than Meets The Eye

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This afternoon the CBO reported a number that in itself is quite remarkable: in April, a preliminary estimate of US receipts and outlays showed that the US Treasury posted its first budget surplus in 42 months, or since September 2008. At $58 billion, the surplus was nearly $100 billion more than the the $40 billion deficit from a year earlier. Unfortunately, while superficially this number would have been worthy of praise, digging underneath the surface as always reveals 'footnotes'. Sure enough, in the aftermath of February which saw a record US deficit of $232 billion and March's $198 billion in net outlays, there was a "catch." As the CBO admits: "This April, the Treasury realized a surplus of $58 billion, CBO estimates, in contrast with the $40 billion deficit reported for the same month last year. The results in both years were influenced by timing shifts of certain payments; adjusted for those shifts, the surplus in April 2012 would have been $27 billion, compared with a deficit of $13 billion in April 2011.... The federal government incurred a budget deficit of $721 billion in the first seven months of fiscal year 2012, $149 billion less than the shortfall reported during the same period last year. Without shifts in the timing of certain payments, however, the deficit so far this year would have been only $92 billion smaller." In other words, without various temporal adjustments, the April surplus of $58 billion would have been completely netted out by the cumulative $57 billion in deficit time shifts. However, in an election year, every beneficial item such as this is an extended talking point as the president will gladly take the praise for a number which is indicative of anything but the underlying US financial "health." After all, others can bother with the explanations.

There is more: the April receipts of $319 billion were a near all time record, and $30 billion more than last year, again driven by the temporal vagaries of tax return season, and a big drop in tax refunds handed out. Sadly, this number is very much unsustainable as the end of tax season year after year sees a dramatic plunge in receipts. Furthermore, while cumulative receipts are running at about 6% higher compared to the prior year, they are $20 billion less than the CBO's own estimate for where revenues would have been at this point as of March. In other words, enjoy the surplus while you can: for another 30 or so days.

Finally, confirming the outlier nature of the surplus, the Treasury did not take any respite in funding its future liquidity needs, and raised a total of $110 billion in cash, proving that sadly the April number is anything but sustainable, especially with a surge in short-term debt maturities that will need to be funded.

Monthly surplus data:

Total April debt issuance:

And the full report from the CBO:

Federal Budget Deficit Totaled $721 Billion for the First Seven Months of 2012, CBO Estimates

The federal government incurred a budget deficit of $721 billion in the first seven months of fiscal year 2012, CBO estimates in its latest Monthly Budget Review—$149 billion less than the shortfall reported during the same period last year. Without shifts in the timing of certain payments, however, the deficit so far this year would have been only $92 billion smaller.

Because of the large inflows of tax revenues, the federal government usually runs a budget surplus in April—though that did not occur in 2009, 2010, and 2011. This April, the Treasury realized a surplus of $58 billion, CBO estimates, in contrast with the $40 billion deficit reported for the same month last year. The results in both years were influenced by timing shifts of certain payments; adjusted for those shifts, the surplus in April 2012 would have been $27 billion, compared with a deficit of $13 billion in April 2011.

April Collections Were Up By 10 Percent

Receipts this April were $319 billion—$30 billion, or 10 percent, higher than collections last April, CBO estimates. The largest boost to net receipts came from a $14 billion decline in the amount of refunds issued. Refunds were lower, in large part, because some that ordinarily would have been recorded in April were made in prior months.

Withheld income and payroll taxes rose by $10 billion (or 7 percent), while nonwithheld receipts from those sources, largely from tax filings, rose by just $2 billion (or 1 percent). In addition, net corporate income tax receipts were $3 billion higher, and all other receipts $1 billion higher, on net, in April 2012 than in April 2011.

Total Receipts Through Seven Months Increased by 6 Percent

Including collections associated with the mid-April filing deadline, receipts through the first seven months were about $1.38 trillion—$74 billion higher than receipts recorded in the same period last year, CBO estimates. Total receipts are running a bit lower than what CBO anticipated when it prepared its most recent budget projections in March. Still, through April:

  • Total receipts from individual income taxes were up by $32 billion, or about 5 percent, compared with collections during the same period last year. Withheld individual income taxes rose by $21 billion (or 4 percent), reflecting growth in wages. Nonwithheld payments rose by $9 billion (or 4 percent), and refunds declined by about $2 billion, further boosting net receipts. Nonwithheld payments during the tax-filing season (February through April)—largely representing final payments for the 2011 tax year—increased by $3 billion (or 2 percent) over the prior year's payments, less than CBO had expected in its March baseline projections.
  • Social insurance receipts grew by $10 billion, or about 2 percent, mostly because collections of unemployment taxes rose by $7 billion as states replenished their recession-depleted trust funds.
  • Corporate taxes, largely reflecting corporations' activity in 2011, increased by $32 billion, or 40 percent. Those receipts are running below CBO's March baseline estimate because final payments made in March for tax year 2011 and estimated payments made in April for 2012 were lower than expected.

Outlays Through April Were About the Same When Adjusted for Timing Shifts

Spending for the first seven months totaled $2.1 trillion, about the same as it was during the same period last year, after the shifts in the timing of certain payments are taken into account. (The year-over-year changes discussed below reflect adjustments for those shifts.)

By CBO's estimates, outlays declined for several major categories of spending:

  • Medicaid spending fell by $26 billion (or 15 percent) because legislated increases in the federal government's share of the program's costs expired in July 2011.
  • Payments for unemployment benefits fell by $16 billion (or 21 percent) because fewer claims were filed in recent months.
  • Education spending dropped by $20 billion (or 35 percent), largely because of a decline in spending from funding provided in the American Recovery and Reinvestment Act.
  • Defense spending declined by about $11 billion (or 3 percent).

For some categories and programs, spending was greater:

  • Outlays recorded for the Troubled Asset Relief Program rose by $18 billion, mostly because of a change in the estimated cost of earlier transactions.
  • Net payments to the government-sponsored enterprises Fannie Mae and Freddie Mac increased by $12 billion.
  • Outlays for Social Security benefits were higher by $22 billion (or 5 percent);
  • Net spending for Medicare was up by $7 billion (or 2.5 percent).