With the release of Obama’s budget for 2013, I thought it might be a good idea to check in on how we are doing with this year’s budget. On Friday, the Budget deficit for January was released. It came in at $27.41 billion for the month, down from $49.8 billion in January 2011. The budget numbers are highly seasonal, but are not seasonally adjusted, so the drop from $85.97 billion in December really doesn’t mean that much. It is the year over year numbers that you have to pay attention to.
One would think that given all the angst and handwringing about the level of the deficit, that a 45% decline year over year might possibly be mentioned somewhere in the financial press, but apparently that drop did not fit the narrative that the press wants to talk about. To be fair, it was only a one month figure, and in a month that traditionally has a relatively low budget deficit. However, it is part of a trend. The red ink has been less than the year ago level in seven of the last ten months, and in three of the last four.
The government’s fiscal year started on October first. On a fiscal year to date basis, the deficit so far this year is $349.15 billion. Even in Washington, that is a lot of money. However it is down from a deficit of $418.76 billion in the first four months of fiscal 2011, or a decline of 16.6%.
The progress on the deficit is coming from both sides. Total revenues are up by 4.19% to $789 billion, while spending is 3.25% lower than in the start of fiscal 2011. On the revenue side, individual income tax collections are up by 4.88% to $403.79 billion while corporate income tax collections have soared by 52.0% to $60.16 billion. Those increases are offset by a 4.44% decline in total Social Security tax receipts (both on and off budget) to $242.55 billion.
Most of the really big line items in the budget have seen a decline in spending so far this fiscal year, and those items make up most of the spending. Even the interest on the national debt was slightly lower (0.4%) despite a much higher level of debt. The Pentagon has spent 6.17% less, and accounts for $14.45 billion of the $38.2 billion total decline in spending. Spending at the Department of Health and Human Services declined by 9.90% and accounted for $28.44 billion of reduced spending, mostly due to lower outlays for Medicare and Medicaid. The department with the biggest percentage drop is the Department of Labor where outlays have tumbled by 22.65% to $37.50 billion, mostly due to lower unemployment insurance payments.
However, many of the people who are no longer getting unemployment insurance have not found new jobs, but have simply exhausted their benefits, and as such are left with no income. That is probably responsible for the 6.81% rise in payments for food stamps, to $27.14 billion. Social Security payments were 2.42% higher than a year ago as more people reach the age when they are eligible for benefits.
Of the total spending so far this fiscal year, 14.8% was consumed by interest on the debt, and 19.3% was spent by the Pentagon. Health and Human Services was 22.7% of the total, and almost all of that was for Medicare and Medicaid. Social Security checks were 23.0% of the total. Those four areas thus make up almost 80% of the total spending, and one of them can not be touched.
If you think that the deficit should be brought down mostly through spending cuts, what would you be cutting, the defense budget, or Medicare payments. If you would be cutting Medicare, would you do it on the basis of who was covered (i.e. raising the age of eligibility) or what was covered (i.e. no hip replacements covered over age 85)?
Some of the deficit will go away as the economy improves, and that is mostly what we are seeing in the fiscal year to date numbers. Tax revenues will rise by a greater percentage than GDP, and spending on automatic stabilizers will fall. However, that alone is not likely to restore a balanced budget.
Both spending cuts and revenue increases will be needed. On the revenue side, would you rather see it done through higher tax rates, or by the elimination of deductions. The three largest “tax expenditures” by far are the deductibility of health insurance premiums by employers, the mortgage interest deduction, and charity. Would you be willing to see any of those go away to avoid higher tax rates?
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