Fiscal 2006 Deficit Now $95 Billion, Says CBO

The federal government ran a deficit of $95 billion in the first four months of fiscal year 2006, CBO estimates, about $15 billion less than in the same period last year. Assuming enactment of additional funding for flood insurance and for ongoing military operations in Iraq and Afghanistan, but no other legislation affecting spending or revenues, CBO expects that the federal government will end 2006 with a deficit in the vicinity of $355 billion. (This estimate reflects the recent Congressional approval of the Deficit Reduction Act of 2005.)

                       DECEMBER RESULTS

                     ESTIMATES FOR JANUARY

CBO estimates that receipts in January increased by about $28 billion, or 14 percent, compared with receipts in January 2005. More than half of that dollar increase stemmed from withholding for individual income and social insurance (payroll) taxes, which increased by $15 billion, or more than 11 percent. In addition, receipts in January from nonwithheld income and payroll taxes, mainly from the last quarterly payments by individuals of estimated taxes for 2005, rose by about $9 billion, or 18 percent. That percentage increase is very similar to the gains recorded for the previous three quarterly payments for 2005, and it probably indicates strong increases in incomes other than wages and salaries.

Outlays in January were $12 billion, or 6 percent, higher than in the same month last year, CBO estimates. Between $5 billion and $6 billion of that total was due to flood insurance and disaster assistance payments related to Hurricanes Katrina and Rita. Medicare outlays were nearly $8 billion higher than in January 2005, but $2 billion of that gain was due to calendar-related shifts in the timing of payments to health care plans. Some of those increases were offset by a difference in the timing of more than $3 billion in aid payments to Israel and Egypt; last year they were made in January, this year they were made in December.

                 BUDGET TOTALS THROUGH JANUARY

                   RECEIPTS THROUGH JANUARY

Nonwithheld payments of individual income and social insurance taxes were higher by about $10 billion, or 14 percent, during this period. That increase stemmed almost entirely from quarterly estimated payments of individual income taxes in January.

Receipts from corporate income taxes grew by $18 billion, or about 25 percent, during the first four months of the fiscal year. Almost all of that increase reflects higher quarterly estimated payments in December. Corporate receipts grew strongly throughout calendar year 2005 as a result of substantial growth in profits and the expiration of certain business tax incentives at the beginning of the year.

For the entire fiscal year, CBO projects, revenues will grow by 7.4 percent -- assuming that current laws remain the same. Individual income tax receipts are expected to grow by 8.2 percent, corporate income tax receipts by 8.6 percent, and social insurance tax receipts by 5.5 percent. CBO's estimates assume that growth in corporate income tax receipts will slow dramatically in the remaining months of the fiscal year, consistent with an expected slowdown in the growth of profits from the sharp increases seen in recent years. CBO also expects slower growth in individual income tax receipts, which will reflect economic activity during calendar year 2006.

                    OUTLAYS THROUGH JANUARY

Medicare spending rose more quickly in the first four months of this year than in all of fiscal year 2005, increasing by 12 percent through January compared with 10 percent last year. The new prescription drug benefit has had little effect on outlays so far this year, but those costs are expected to accelerate in the months ahead.

Outlays through January for the category "other programs and activities" were almost 9 percent higher than in the same period last year, CBO estimates, largely because of the additional $20 billion spent for flood insurance and disaster assistance. Spending by the Department of Agriculture was about $5 billion higher than in the first four months of 2005, but that increase was offset by higher receipts for Medicare premiums and lower spending for various other programs.

Net outlays for interest on the public debt were about 24 percent higher than in the first four months of 2005 because of increases in short-term interest rates, the higher rate of inflation (which affects the cost of inflation-indexed securities), and the growing amount of federal debt.

Prepared by Mark Booth, Chad Chirico, Barbara Edwards, and Kathy Gramp. This Monthly Budget Review and other CBO publications are available at www.cbo.gov.

Note: Unless otherwise indicated, the figures in this report include the Social Security trust funds and the Postal Service fund, which are off-budget. Numbers may not add up to totals because of rounding.