August Federal Budget: Receipts Up, Spending Way Up; Still on Track for a $150 Billion Deficit

Here are the numbers (The August Monthly Treasury Statement is here; July’s results were covered at this post):

At first, this looks like a disaster. Receipts in August 2007 were up a nice 8.2% over August 2006, but spending was up a whopping 30% ($65 billion) in the same comparative period. August 2007’s spending was also $77 billion higher than July’s.

But a closer look shows there’s less to worry about than meets the eye. That’s because $57 billion of the $77 billion July-August difference occurred in Social Security ($35 billion) and the Department of Health and Human Services ($22 billion). Those two big differences happened mostly, if not entirely, because September benefit and vendor payments were electronically transferred or mailed on August 31 instead of on the first business day of September. This would have been done to ensure that beneficiaries and vendors got their money on September 4, the first business day after Labor Day.

One example: The August 31, 2007 Daily Treasury Statement shows $21.2 billion in Social Security Electronic Funds Transfers, while July 31, 2007 shows just $16 million; the big SocSec EFTs took place on August 3. Another: Vendor payments relating to Medicare were $10 billion higher on August 31 than they were on July 31. There are surely more examples I could not as easily find.

What this means is that September’s disbursements should quite a bit lower than the average so far through 11 months. I don’t expect the same last-day disbursement wave at the end of September, because it didn’t take place at the end of fiscal 2006, when the last business day was September 29. For example, Social Security EFTs were zero on September 29, 2006, $325 million on October 2, and $21.1 billion on October 3. This year’s last business day will be September 28. Since a big year-end rush of benefit and other payments didn’t happen last year, there’s less reason for it to happen this year.

Given all of this, I’m going to go out onto what appears to be a limb and predict that the final deficit for the year will still come in below $150 billion. Specifically:

• September’s receipts should be about $315 billion, about 11% higher than last year’s $283 billion, because of high estimated payments that will pour in after the September 17 due date.
• September’s outlays will be about $185 billion, because so much doubling-up took place in Social Security and HHS in August.
• September’s surplus will be about $130 billion ($315 - $185).
• Fiscal 2007’s deficit will be about $144 billion (the $274 billion deficit through the end of August less September’s $130 billion surplus). That will be over 40% lower than the fiscal 2006 deficit of $247 billion, and 55% lower than fiscal 2005’s $318 billion.

Wild cards that remain:

• Will the estimated tax money pour in like it did in April?
• Will federal bureaucrats engage in a last-minute spending spree to use up any remaining unspent amounts in their departmental budgets?
• Will someone get “clever” and try to get October’s Social Security benefits and other payments into September, effectively squeezing 13 months of spending into 12?

I hope new Budget Director Jim Nussle is paying attention.

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UPDATE: The AP’s Martin Crutsinger reports that “$44 billion in Social Security and Medicare payments that normally would have been made in September to be shifted into August.” I think the number is bigger, but this howler from Crutsinger can’t be allowed to stand:

While forecasts had projected that government surpluses would total $5.6 trillion over the next decade, the 2001 recession, spending on the wars in Iraq and Afghanistan and the president’s first-term tax cuts all combined to wipe out those surpluses.

That report was issued by the Congressional Budget Office in January 2001, as the dot-com bubble was bursting, the economy was slowing, and, not coincidentally, as administrations were changing. Nobody should have believed the surplus nonsense when it was released, and it’s disingenuous to pretend now that it ever had any credibility.