The telling stat in the U.S. Treasury Department's February budget report? U.S. government tax receipts, which plummeted 17 percent to a 14-year low of $87.3 billion.
Outlays were flat at $280.1 billion, which created a $192.8 billion budget deficit in February. The February total is the second largest monthly deficit in the nation's history. The record for one month? Negative $237.2 billion in October 2008, when the bank bailout was passed. Economists surveyed by Bloomberg News had expected the February budget deficit to total $205.7 billion.
2009 deficit soars
Further, for the first five months of the fiscal year, fiscal 2009, which began in October 2008, the budget deficit totaled $764.5 billion, or about $500 billion above fiscal 2008's five-month deficit. In fiscal 2008, the U.S. budget deficit totaled a record $459 billion. As a result of the bank bailout and fiscal stimulus, this year's budget deficit will easily exceed $1 trillion and will probably approach $1.2 trillion.
The five-month deficit portion of the February budget report was expected: most forecasts had seen an increase of more than $400 billion.
In February, federal individual income taxes fell 64 percent to a scant $8.7 billion -- the lowest monthly total for individual income taxes since 1985. Individual income taxes for the first five months totaled $388.5 billion, down 13 percent from a year ago. Also in February, corporate taxes were negative at -$2 billion.
February is historically the federal government's lowest revenue month of the year, but the record-low monthly individual income tax total this February also reflects the large layoffs that have occurred over the past five months, with the nation having lost more than 2.4 million jobs during that period.
Economic Analysis: A long time ago, in a galaxy far, far away (actually it was just 10 years ago during the administration of President Bill Clinton), the federal budget was in surplus (that's no joke!) and the nation was paying off its national debt. During the Clinton Administration, the federal government stopped selling certain bonds because there was no need to raise the money!
How times have changed. What are the biggest contributors to the current budget deficit? Obviously, increased spending for the bank bailout, fiscal stimulus, but also for defense spending for the Iraq and Afghanistan wars. It's also very pertinent to point out that had the Bush Administration's 2001 $1.35 trillion tax cut not occurred, the budget today would practically be balanced, absent bailout and fiscal stimulus spending.
Still, while high, investors should not be distressed by the federal government's running trillion-dollar, annual budget deficits this year and next year. It's counterproductive to raise taxes in a recession, and the fiscal stimulus and bank bailout spending are needed to both stabilize the financial system and get the U.S. economy on a sustainable growth track.
Provided U.S. economic growth resumes (and it will), the budget deficit will begin to trend lower, hopefully starting as soon as late fiscal 2010. Also, the Bush tax cuts are scheduled to automatically expire at the end of 2010; if Congress lets them expire, that will lower the deficit, as well.
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