At Halftime, FY 2013 Leads FY 2012 $601 Billion to $779 Billion

CBO's latest Monthly Budget Review (MBR) for March means that we now have budget data for the first six months of FY 2013. The six-month deficit stands at $601 billion, down from $779 billion over the same period last year. For context, CBO previously projected that the deficit for FY 2013 would be $845 billion, compared to the actual FY 2012 deficit of $1.089 trillion.

The MBR is interesting this year because of many budgetary changes that have been made compared to last year. We have seen the expiration of a portion of the 2001/2003/2010 tax cuts, the expiration of the payroll tax cut, the implementation of some tax increases from the Affordable Care Act, the beginning of the sequester, the continued drawdown of war spending, and the enactment of other smaller spending changes. While most of these changes have only been in effect for the last three months, they are clearly already having an impact.

In nominal terms, compared to 2012, revenue is up by 12.4 percent and spending is actually down by 2.5 percent. So far, this is more fiscally favorable than what CBO predicted for the full fiscal year, having revenue up by 10.6 percent and spending up by 0.4 percent. It is unclear whether this trend will continue given the asymmetric nature of spending and revenue from month to month, but if it did, we would certainly see a lower 2013 deficit than CBO has projected.

Six-Month Budget Totals (billions)
  FY 2012 FY 2013 Percent Change
Revenue $1,067 $1,197 12.4%
Outlays $1,843 $1,798 -2.5%
Deficit -$779 -$601 -22.8%

Source: CBO

Given the recent tax changes, it is not surprising that higher income and payroll taxes are driving the revenue growth. In addition, growing corporate profits have pushed up corporate income tax revenue. On the spending side, Social Security, Medicare, and Medicaid have grown steadily while other categories of spending have declined. Defense spending is down six percent mostly due to war spending being drawn down. Unemployment benefits are down by one quarter due to lower unemployment and longer-term unemployed people exhausting their benefits. Other mandatory and discretionary spending is down about nine percent due to the discretionary spending caps, improvements in the economy resulting in lower safety net spending, and some legislative changes. The sequester is unlikely to factor a great deal into these totals since only a small amount of cuts have actually hit money going out the door so far; rather, sequester cuts have affected the amount of new obligations that the federal government is able to incur (budget authority).

Over the past few years, the deficit has been steadily coming down as the economy has grown at a modest pace and lawmakers have enacted some deficit reduction. The six-month budget review of FY 2013 shows that trend has continued.