U.S. Government’s July Budget Deficit Drops 24% Y-o-Y

Budget deficit drop linked to 14% fall in outlays and slower 7% decline in receipts

The U.S. government recorded a 24% Y-o-Y drop in its budget deficit to $113 billion in July 2016, as per the U.S. Treasury Department’s monthly statement released on Wednesday, August 10th, 2016. The government had a deficit of $149 billion in July 2015. The budgetary deficit fall in July 2016 can be linked to a 14% fall in outlays to $323 billion, while receipts declined at a slower pace of 7% to $210 billion during the month. Accounting for calendar adjustments, the July 2016 budget deficit would have been $101 billion when compared with an adjusted $107 billion deficit in July 2015.

Source: Financial Management Service, U.S. Treasury Department
Source: Financial Management Service, U.S. Treasury Department

On the other hand, the fiscal year-to-date (for the first 10 months of the budget year) shortfall jumped 10% to $514 billion through July 2016 as compared to a shortfall of $466 billion for the comparable period last year. The government’s budget year runs from October through September. The higher year-to-date shortfall is mainly due to receipts remaining flat through the month, with spending increasing slightly.

On an adjusted basis, the fiscal year-to-date deficit stood at $505 billion in July 2016 compared to $423 billion in July 2015. During July 2016, receipts grew 7% to $210 billion versus July 2015, while outlays fell 14% to $323 billion versus the year-ago period. Lower-than-expected receipts have prompted the Congressional Budget Office to increase its 2016 deficit estimates to $590 billion, up from earlier estimates of $534 billion, which would amount to $150 billion more than the deficit in 2015.

Fall in gross corporate receipts

For the year-to-date period, the U.S. Treasury Department’s monthly statement also shows that receipts of individual income taxes have risen by 3%. However, gross corporate receipts have dropped 12% so far this budget year, which may be due to lower taxable profits and lesser payments of estimated taxes by corporations this year. Another cause for concern is that government revenues were flat from the year-ago period, while spending increased by 2%. Spending on interest on the public debt climbed 8% and Medicaid spending increased 4%. Moreover, revenue from corporate taxes has fallen 12% so far this year, reflecting a drop in business profits.

The deficit hit a peak of $1.4 trillion in 2009 when the U.S. government was faced with a recession. The shortfall dipped below $1 trillion in 2013. In June 2016, the Obama administration predicted a deficit of $600 billion for FY16, roughly in line with the Congressional Budget Office’s forecast of $590 billion, an increase from FY15’s shortfall of $439 billion.

The accumulating budget deficits add to the federal debt, which now stands at nearly $19.4 trillion. That figure includes $5.4 trillion that the government owes to itself, mostly from usage of funds allocated for Social Security.

Budget and the 2016 elections

The budgetary deficit assumes significance with the upcoming U.S. presidential elections slated for November 2016. In the run-up to the election, the economy and the deficit have become the two cornerstones in the agendas of presidential candidates. Democratic candidate Hillary Clinton plans to invest $275 billion in infrastructure development aimed at strengthening the economy. She has also called for an expansion of the Affordable Care Act, which would add $250 billion to the federal debt over a decade. Republican presidential nominee Donald Trump plans to focus on scaling back tax cuts, especially business taxes, which would increase federal debt by $2.55 trillion over 10 years.

Whether the presidential candidates focus on the economy or the expanding deficit, it remains to be seen which one will take priority in the near future.

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