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.