Feb 8, 2023
US Budget Deficit Widens Rapidly, Threatening Debt-Limit Timeline
(Bloomberg) -- The federal budget deficit is widening rapidly, according to the latest estimates by the Congressional Budget Office, raising the risk of the Treasury running out of cash earlier than expected amid a debt-ceiling standoff.
The excess of spending over receipts totaled $459 billion for the first four months of the fiscal year, which started Oct. 1, according to CBO estimates released on Wednesday. That’s a $200 billion increase over the same period a year earlier.
Treasury Secretary Janet Yellen has already deployed special accounting maneuvers to extend the time before her department will run out of cash, after the federal government hit the statutory $31.4 trillion debt ceiling last month. In mid-January, she indicated those maneuvers would last at least until early June.
The CBO figures show that spending is picking up, while revenues are coming in weaker than last year. In 2022, the Treasury enjoyed a record tax haul, thanks in part to booming job and wage growth, along with the powerful rallies in financial markets in 2021 that yielded funds via capital-gains levies. But market routs last year suggest tax revenues from that source will now be much weaker.
The Treasury typically releases its official monthly budget figures mid-month, so it hasn’t yet posted figures for January. For the three months through December, the Treasury reported a $421 billion deficit, some 12% worse than the previous year.
Read More: US Budget Gap Hits $421 Billion for Quarter, Before Debt Fight
The department has already hinted that spending and revenues might be coming in worse — from a budgeting perspective — than anticipated. Last week, the Treasury boosted its estimated borrowing need for the current quarter, thanks in part to “projections of lower receipts and higher outlays” that totaled $93 billion.
The CBO said that if it hadn’t been for calendar-driven shifts in certain payments, the federal deficit would have been $522 billion for the October-January period — double the year-earlier shortfall.
Republicans are likely to showcase the budget deterioration in arguing that the Biden administration’s economic policies have put the US on an unsustainable fiscal course. The GOP is insisting on spending cuts in return for raising the debt limit. President Joe Biden has rejected any conditions, and in his State of the Union speech Tuesday said that no administration had added more to the national debt than that of his GOP predecessor, Donald Trump.
Read More: House Republicans Offer Cuts They’d Back in Deal for Debt Limit
Among the causes of the drop in revenue, the CBO noted that the Treasury is no longer receiving as much from the Federal Reserve, which is now paying out more in interest to commercial banks on the reserves they park at the Fed.
Corporate-tax revenue has also dipped, while individual income-tax refunds rose, the CBO also said. Meantime, spending on areas including Social Security, Medicare and Medicaid have jumped over the fiscal year through January, the agency said.
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