The Budget Deficit Keeps Rising

The federal government racked up a $389 billion deficit during the first three months of the fiscal year (October through December), according to estimates released by the Congressional Budget Office yesterday. That’s $56 billion more than during the first quarter of last year, almost a 17% increase. (A portion of that increase is due to the timing of weekends and holidays, but even controlling for those, the deficit is up 8%.)

Two factors have been driving the increase:

1. Tax revenues continue to plummet. Revenues fell to $489 billion during the quarter, down $58 billion or 11% from last year.

2. Spending continues to grow rapidly in most programs. For example, Medicaid has grown by 25% since the same period last year, Medicare spending has grown by 8%, and Social Security spending has grow by 10%. After declining last year, interest payments are now on the rise, up more than 17%. Excluding the three programs most closely related to the financial crisis (TARP, the GSE bailout, and the FDIC), federal spending is up about 13% over the same period last year. (All these figures have been adjusted to control for timing differences due to weekends and holidays.)

The one piece of good news, budget wise, is that spending on the three financial programs has declined significantly. CBO estimates that TARP spending during the first quarter fell by $85 billion (from $91 billion to $6 billion), and spending on the GSEs fell by $1 billion (from $14 billion to $13 billion). Net spending by the FDIC fell by $45 billion, primarily because FDIC receipts have increased sharply (and are accounted for as a reduction in spending). Together, those three programs have cost $131 billion less than at this point last year.

Bottom line: Tax revenues continue to fall, most types of spending continue to increase, but spending on the financial rescue has declined.

About Donald Marron 294 Articles

Donald Marron is an economist in the Washington, DC area. He currently speaks, writes, and consults about economic, budget, and financial issues.

From 2002 to early 2009, he served in various senior positions in the White House and Congress including: * Member of the President’s Council of Economic Advisers (CEA) * Acting Director of the Congressional Budget Office (CBO) * Executive Director of Congress’s Joint Economic Committee (JEC)

Before his government service, Donald had a varied career as a professor, consultant, and entrepreneur. In the mid-1990s, he taught economics and finance at the University of Chicago Graduate School of Business. He then spent about a year-and-a-half managing large antitrust cases (e.g., Pepsi vs. Coke) at Charles River Associates in Washington, DC. After that, he took the plunge into the world of new ventures, serving as Chief Financial Officer of a health care software start-up in Austin, TX. After that fascinating experience, he started his career in public service.

Donald received his Ph.D. in Economics from the Massachusetts Institute of Technology and his B.A. in Mathematics a couple miles down the road at Harvard.

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