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October 12, 2006
hp-135

Joint Statement of
Henry Paulson,
Secretary of the Treasury,
and
Robert Portman,
Director of the Office of Management and Budget,
on
Budget Results for Fiscal Year 2006

SUMMARY

The Administration today released the September 2006 Monthly Treasury Statement of Receipts and Outlays of the United States Government [1]. The statement shows the actual budget totals for the fiscal year that ended September 30, 2006, as follows:

• A deficit of $248 billion;
  
  
•  total receipts of $2,407 billion; and
  
  
• total outlays of $2,654 billion.

"This year we saw revenues at historic levels, with annual receipts up 12 percent and single-day corporate and total receipts hitting all-time highs on September 15. In the past two years we've seen the highest year-over-year revenue growth in 25 years. This good news has allowed us to exceed the President's target of cutting the deficit in half while maintaining a strong and growing economy.

"Now we must stay on a responsible path to curb unnecessary spending. We must address the entitlement situation that weighs as the heaviest fiscal burden in our future and we must work together to find a solution."

- Secretary Henry Paulson

"The President's pro-growth policies are continuing to fuel a strong economy, solid job creation and record-breaking revenues.  Together with a strong commitment to spending restraint, these revenues are driving down the deficit.  When the President promised to cut the deficit in half in five years, some said it couldn't be done.  Yet, it has now been achieved, three years ahead of schedule.

"Raising taxes and increasing spending would imperil the vibrant economy that has generated 6.6 million jobs in three years.  Continuing to make progress in reducing the deficit and expanding the economy requires that we make the President's tax cuts permanent and continue to hold the line on spending."

- Director Robert Portman

Table 1. TOTAL RECEIPTS, OUTLAYS AND SURPLUS/DEFICIT (-)
(in billions of dollars)

	Receipts	Outlays	Surplus/Deficit (-)
2005 Actual................................	2,153	2,472	-319
FY 2006 Estimates:
FY 2007 Budget...................	2,285	2,709	-423
FY 2007 Mid-Session Review...	2,400	2,696	-296
Actual.........................................	2,407	2,654	-248

The FY 2006 unified deficit was $248 billion, or an estimated 1.9 percent of the Gross Domestic Product (GDP). At this level, the deficit is 0.4 percentage points below the 40-year average of 2.3 percent of GDP. The deficit for FY 2006 was $48 billion lower than projected in the Mid-Session Review (MSR) because receipts were $6 billion higher and outlays were $42 billion lower than expected. The deficit was also $176 billion lower than projected last February in the FY 2007 Budget, with receipts coming in $121 billion higher and outlays $54 billion lower than projected.

Overall, receipts in FY 2006 were 11.8 percent higher than in FY 2005. Together with last year's 14.5 percent receipt growth, this represents the highest rate of increase in receipts in two consecutive years since 1981.  The 11.8 percent increase in total receipts was driven by growth in individual and corporation income tax receipts, and social insurance and retirement receipts. In total, these receipts accounted for $236 billion of the $253 billion increase in receipts over FY 2005. Receipts rose from 17.6 percent of GDP in 2005 to 18.4 percent of GDP in 2006.

Outlays for FY 2006 grew by $182 billion, or 7.4 percent, from last year. This increase was driven by growth in the Departments of Defense – Military and Health and Human Services, the Federal Emergency Management Agency, the Social Security Administration, Medicare and net interest, which account for $154 billion of the $182 billion outlay increase. The total growth in outlays for FY 2006 reflects not only these increases, but also slower growth rates in a number of other agencies and programs. Outlays increased slightly as a percent of GDP, from 20.2 percent in 2005 to 20.3 percent in 2006.

RECEIPTS

Total receipts for FY 2006 were $2,407 billion, $6 billion greater than the MSR estimate of $2,400 billion.  Higher-than-expected collections of corporation income taxes and social insurance and retirement receipts, which were partially offset by lower-than-expected collections of individual income taxes, accounted for most of the net increase in receipts relative to the MSR.  Table 2 displays actual receipts and estimates from the MSR by source.

• Individual income taxes were $1,044 billion, $19 billion lower than the MSR estimate.  A refund to the Social Security Trust Funds, which corrected an error in past amounts the Social Security Administration (SSA) had forwarded to Treasury for taxes withheld from social security benefits, accounted for $6 billion of the shortfall in individual income taxes relative to the MSR.  Although SSA withheld the correct amounts from benefit payments, it inadvertently forwarded higher amounts to Treasury, thereby necessitating the refund. The refund reduced individual income taxes, but also reduced outlays of the Social Security Trust Funds by an equal amount; there was no impact on the deficit.  In another accounting adjustment, withheld tax payments were reallocated from individual income taxes to the Social Security and Medicare Trust Funds based on more recent data.  This reduced individual income taxes by an additional $4 billion with an equal increase in Social Security payroll taxes.  Finally, lower-than-estimated payments of withheld and non-withheld taxes, which were partially offset by lower-than-expected refunds, accounted for the remaining decrease of $9 billion.
  
  
• Corporation income taxes were $354 billion, $22 billion greater than the MSR estimate.  One-time settlements and inaction on the Administration's legislative proposals increased receipts relative to the MSR by $4 billion and $2 billion, respectively.    Higher-than-estimated corporate tax payments and lower-than-estimated refunds were responsible for the remaining increase of $16 billion relative to the MSR.
  
  
• Social insurance and retirement receipts were $838 billion, $4 billion greater than the MSR estimate. This increase was primarily attributable to the reallocation of withheld tax payments from individual income taxes to the Social Security and Medicare Trust Funds, as described above. 
  
  
• Other sources of receipts (excise taxes, customs duties, estate and gift taxes, and miscellaneous receipts) were $171 billion, the same as the MSR estimate, due to offsetting changes among these sources of receipts.

OUTLAYS

Total outlays were $2,654 billion, $42 billion below the MSR estimate. Outlays for nearly all agencies were down from the MSR, with the largest reductions in the Departments of Defense – Military and Health and Human Services, and the Social Security Administration. Outlays were higher than projected in the MSR for the Departments of Education and Treasury and the Environmental Protection Agency. Table 3 displays actual outlays by agency and major program as well as estimates from the Budget and the MSR. The largest changes in outlays from the MSR were in the following areas:

• Department of Agriculture – Actual net outlays for the Department of Agriculture (USDA) were $94 billion, a decrease of $1.1 billion from the MSR estimate.  In the Farm Service Agency, Commodity Credit Corporation outlays were lower than anticipated due to an unanticipated debt prepayment from a foreign borrower.  Net outlays were also lower than estimated for the Child Nutrition and WIC programs, and slightly higher for the Food Stamp program.  However, the decrease was partially offset by the acceleration of some commodity payments as part of USDA's 2006 disaster response.
  
• Department of Defense - Military – FY 2006 outlays for the Department of Defense - Military were $499 billion, a decrease of $13 billion from the MSR estimate. This difference can be attributed primarily to the late passage of the FY 2006 emergency supplemental, which caused the military services to restrain spending in June and July more than expected.  Outlays have picked up gradually since August, but not as quickly as projected.  It is anticipated that most of this funding will be spent in FY 2007.  
  
  
• Department of Education – Outlays for the Department of Education were $93 billion in FY 2006, $5 billion above the MSR estimate. Federal Student Aid outlays were $6 billion higher than the MSR estimate, primarily because of substantially higher consolidation of student loans than was estimated in the MSR.  Consolidation loan volume increased by $36 billion in the Federal Family Education Loan Program over MSR estimates, to $82 billion. The subsidy cost for this increased loan volume was $5.6 billion.  In the William D. Ford Federal Direct Loan Program, consolidation loan volume was $22 billion, an increase of $7 billion over the MSR. The volume increase in the Direct Loan program led to increased outlays of $0.5 billion. Offsetting the outlay increases for the Federal Student Aid programs, net outlays were lower than estimated for the Office of Elementary and Secondary Education and for funds provided for hurricane relief.
  
  
• Department of Health and Human Services – Net outlays for the Department of Health and Human Services were $614 billion in FY 2006, $13 billion lower than MSR. Medicare gross outlays were $8 billion lower than the MSR estimate, due to lower spending for benefit payments.  The decrease results in part from lower-than-expected spending for inpatient hospital services.
  
  Outlays for Medicaid were $4.3 billion lower than projected in the MSR, due to lower-than-expected claims for Federal share reimbursement of State Medicaid spending during the last half of the fiscal year.
  
  Other outlays in the Centers for Medicare and Medicaid Services were $1.2 billion below MSR estimates due largely to lower-than-expected outlays in the State Grants and Demonstrations account for Hurricane Katrina relief activities.  These funds will be expended in FY 2007.
  
  
• Department of Homeland Security – Outlays for the Department of Homeland Security were $69 billion in FY 2006, $3.5 billion below the MSR estimate.  About half of this difference is attributable to $1.7 billion in delayed obligations by Customs and Border Protection and Immigration and Customs Enforcement from supplemental funding.  Additionally, outlays for the Federal Emergency Management Agency's National Flood Insurance program were $1.8 billion less than estimated in the Mid-Session Review.
  
  
• Department of Housing and Urban Development – FY 2006 outlays for the Department of Housing and Urban Development were $42 billion, $3.4 billion below MSR projections.  The majority – $2.4 billion – is attributable to slower-than-expected expenditure of the $17 billion in FY 2006 emergency supplemental funds provided to the Community Development Block Grant Program for long-term recovery and rebuilding in the Gulf Coast States.  Expenditure of these funds is dependent on states executing their assistance plans, and Louisiana in particular, with over $10 billion in CDBG funds, has been slower to implement its plan compared to estimates in July. The remaining outlay difference is the result of increased receipts in Federal Housing Administration programs and slower-than-anticipated spending in Section 8 Rental Assistance and other programs.
  
  
• Department of Labor – The Department of Labor's outlays were $43 billion in FY 2006, $4 billion less than the MSR estimate.  Outlays for the Pension Benefit Guaranty Corporation (PBGC) were $3 billion lower than estimated due to an underestimate of earnings on PBGC securities.  PBGC received $3 billion in interest premiums from an intragovernmental debt transaction that was not reflected in the MSR. These lower net outlays were offset by higher-than-expected interest outlays in the interest on the public debt account in the Treasury Department.
  
  For the Unemployment Trust Fund, outlays were $0.7 billion below the MSR due to lower-than-anticipated unemployment, combined with a slower growth in the average weekly benefit amount.
  
  The differences in the Training and Employment Services ($1.5 billion above the MSR) and "Other" accounts ($1.6 billion below the MSR) are related to the accounting of the transfer of the Job Corps program from the Employment and Training Administration to the Office of the Secretary.  While the program was indeed transferred, DOL did not transfer funding between accounts (as the MSR assumed) but instead used the allotment process.
  
  
• Department of State – Outlays for the Department of State were $13 billion in FY 2006, $1.1 billion below the MSR estimate. Of this amount, outlays for international narcotics control and law enforcement programs were $0.7 billion lower than the MSR due to smaller-than-expected contributions from program partners and delays in signing bilateral agreements.  Other differences from the MSR include a decrease of $0.4 billion due to net lower-than-anticipated expenditures in the Administration of Foreign Affairs accounts, including lower-than- anticipated expenditures of FY 2006 supplemental funding.
  
  
• Department of Transportation – Department of Transportation outlays were $60 billion in FY 2006, $1.3 billion below the MSR estimate. The decrease was due to slower-than-anticipated obligation and spending of funds for many Federal-Aid Highway grants, surface transportation safety bureaus, Federal Aviation Administration grants and capital investments.
  
  
• Department of Treasury – The Department of the Treasury had actual outlays of $464 billion, $8 billion higher than the MSR estimate.  Interest on the public debt, which includes interest paid to government accounts as well as interest paid to the public, was $406 billion, $6 billion higher than the MSR estimate.  This difference was largely due to interest paid to trust funds and other government accounts, which was $4 billion higher than the MSR.  Higher-than-estimated interest paid to Department of Defense retirement accounts (+$3 billion) and the Pension Benefit Guaranty Corporation (+$3 billion) was partly offset by lower-than-estimated interest paid to the Civil Service Retirement and Disability Fund (-$2 billion).  These interest payments to trust funds and other government accounts had no impact on the deficit, because they were offset by changes in undistributed offsetting receipts and various agency totals.  Interest paid to the public was $2 billion higher than the MSR estimate, largely due to higher interest paid on inflation-indexed securities. 
  
  In addition, $1.2 billion in higher outlays for interest on Internal Revenue Service refunds and $2.2 billion in lower-than-estimated offsetting receipts (largely interest received from direct loan financing accounts) also added to the higher-than-estimated actual Treasury outlays.
  
  
• Other Defense Civil – Outlays for other defense civil programs were $44 billion, $1.3 billion less than projected in the MSR.  The difference was largely due to higher-than-expected interest earnings for the Medicare-eligible military retiree health care fund.  These lower net outlays were offset by higher-than-expected interest outlays in the interest on the public debt account in the Treasury Department.
  
  
• International Assistance Programs – Outlays for International Assistance Programs were $14 billion in FY 2006, $2.0 billion below the MSR estimate.  Outlays for the Foreign Military Sales program were $0.7 billion lower than the MSR due to higher-than-estimated payments that arrived in the last quarter of FY 2006 that had not yet been disbursed for the purchase of defense articles and services.  Other differences from MSR estimates included slight decreases in outlays for Foreign Military Financing primarily due to slower-than-expected outlays of prior-year grants and higher-than-anticipated prepayments on Foreign Military Loans. The change of an additional $1 billion below the MSR is due to lower-than-anticipated expenditures across several International Assistance accounts and greater-than-expected offsetting collections.
  
  
• Office of Personnel Management – Office of Personnel Management outlays were $62 billion in FY 2006, $1.1 billion below the MSR. Actual outlays for the Civil Service Retirement and Disability Fund were $0.3 billion lower than estimated in the MSR, due largely to a lower-than-anticipated increase in the retired employee population. In addition, actual net outlays were $0.7 billion less for the Employees and Retired Employees Health Benefits Funds due to lower health care costs in the third quarter of FY 2006 than estimated in the MSR.
  
  
• Social Security Administration – In FY 2006, Social Security Administration (SSA) outlays were $586 billion, $5 billion below the MSR.  SSA received a refund from the Internal Revenue Service (IRS) for $5.6 billion as a result of overpayments SSA made for tax years 1999-2005 under the voluntary income tax withholding program for Social Security benefit payments.  Payments made to individual beneficiaries were not impacted. This refund reduced outlays and receipts by equal amounts with no effect on the deficit.
  
  
• Postal Service – The United States Postal Service had net actual outlays of -$1.1 billion, $3.3 billion lower than the MSR estimate.  This difference is almost entirely due to inaction on an Administration proposal to outlay funds from an escrow account at the Postal Service to the Office of Personnel Management to pre-fund Postal Service retiree health benefit liabilities.  This proposal would have no impact on the deficit because the funds would remain with the government.  The lower outlays due to inaction on this proposal are offset by lower undistributed offsetting receipts for employer share, employee retirement.

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REPORTS

• Additional Tables