Through Ten Months, the Deficit is $975 Billion
CBO's Monthly Budget Review for July lays out how the first ten months of this fiscal year compared to last year. The FY 2012 deficit so far totals $975 billion, $125 billion lower than the $1.1 trillion at this point last year. The lower deficit is the result of revenue being $114 billion higher and spending actually being $11 billion lower.
On the spending side, the Budget Control Act and war drawdown have decreased spending on both defense and non-defense discretionary spending relative to last year. Unemployment benefits are down by one-fifth due to a lower unemployment rate, people exhausting their maximum weeks of benefits, and lower maximum weeks allowed following the payroll tax cut extension. In addition, the wind down of increased Medicaid matching to the states has reduced program spending by 11 percent. Despite an increase in debt over the past year, interest payments are down slightly due to lower interest rates.
The most eye-popping aspect of the revenue side is a 30 percent increase in corporate revenue. However, this does not necessarily reflect a jump in profits but rather a timing shift from the availability of full expensing of equipment last year. Because companies were able to write off these investments immediately last year, they essentially deferred tax liability to future years by passing up deductions they would have been able to take in the years beyond 2011, resulting in lower revenue last year and higher revenue this year. Other parts of the tax code, such as income and payroll taxes, have increased modestly due to rising incomes.
|FY 2012 Deficits Compared to Last Year (billions)|
|July 2011||July 2012||FY 2011 Through July||FY 2012 Through July
Overall, this year's deficit appears to be on track for the $1.17 trillion mark that CBO projected in March. We will see in two weeks if they still project that when they release their August baseline.