The Treasury reported a surplus of $38 billion in January. That amount is about $2 billion less than CBO had estimated on the basis of the Daily Treasury Statements, largely because defense spending was higher than expected.

ESTIMATES FOR FEBRUARY (Billions of dollars)
	Actual FY2006		Preliminary FY2007		Estimated Change
Receipts	113		120		7
Outlays	232		243		11
Deficit (-)	-119		-123		-4
Sources: Department of the Treasury; CBO.

The deficit in February was $123 billion, CBO estimates, $4 billion more than the deficit recorded in February 2006.

CBO estimates that revenues totaled about $120 billion in February, an increase of about $7 billion (or 6 percent) compared with revenues in February 2006. Withholding for income and payroll taxes rose by about $10.5 billion, or almost 8 percent. Those increases were partially offset by higher refunds of individual income taxes and new refunds of telephone excise taxes, which together shaved an estimated $4 billion off growth in total revenues. Net receipts from corporate income taxes were roughly unchanged, as both collections and refunds increased by comparable amounts.

Outlays were about $11 billion (or 5 percent) greater this February than they were last February, CBO estimates. Spending for Social Security benefits and Medicare grew by $3 billion each compared with outlays in the same month last year. Medicaid spending was up by $2 billion in February, as was net interest on the public debt.

BUDGET TOTALS THROUGH FEBRUARY (Billions of dollars)
	Actual FY2006		Preliminary FY2007		Estimated Change
Receipts	873		954		81
Outlays	1,091		1,119		29
Deficit (-)	-218		-165		52
Sources:  Department of the Treasury; CBO.

CBO estimates that the government incurred a deficit of $165 billion in the first five months of fiscal year 2007, compared with a shortfall of $218 billion recorded for the same period last year. Total receipts were about $81 billion (or 9.3 percent) higher than those recorded in the same period last year. Outlays have risen by about $29 billion (or 2.6 percent).

RECEIPTS THROUGH FEBRUARY (Billions of dollars)
Major Source		Actual FY2006		Preliminary FY2007			Percentage Change
Individual Income		393		443			12.8
Corporate Income		94		114			21.0
Social Insurance		322		335			4.2
Other		64		61			-3.6
	Total	873		954			9.3
Sources:  Department of the Treasury; CBO.

Receipts of individual and corporate income taxes are more than 14 percent higher than they were in the first five months of fiscal year 2006; collections of social insurance payroll taxes are growing more slowly—by about 4 percent. Withholding for income and payroll taxes has increased by $53 billion, or almost 8 percent, so far this year. Those receipts were especially robust in January, probably boosted by year-end bonuses. Growth in such receipts slowed in February, but remained higher than in the October-December period. Nonwithheld receipts of income and payroll taxes increased by $18 billion, or about 21 percent. That largely reflects increases in the final quarterly estimated payment for 2006 made by taxpayers in January. Refunds of individual income taxes (which exclude outlays for refundable tax credits) have grown by about $6 billion, or 11 percent. Refunds in February, the first full month in the tax filing season, grew by more than 5 percent. Usually by this point in the tax filing season, the Internal Revenue Service has sent out refunds to roughly 40 percent of taxpayers who will end up requesting them.

Receipts of corporate income taxes increased by about $20 billion, or 21 percent, in the October-February period, compared with collections in the same period last year. Most of that increase occurred in December, when the last quarterly payment of taxes for tax year 2006 was made, and the only major payment month so far this year.

Other receipts have declined by about $2 billion, or 4 percent, through February of this year because payments of excise taxes have declined. Those receipts have fallen mainly because major elements of the tax on telephone services were terminated last August, with refunds allowed for amounts paid over the past several years.

OUTLAYS THROUGH FEBRUARY (Billions of dollars)
								Percentage Change
Major Category			Actual FY2006		Preliminary FY2007			Actual		Adjusteda
Defense—Military			202		219			8.3		8.2
Social Security Benefits			222		235			5.9		6.1
Medicare			144		179			24.3		17.6
Medicaid			74		77			4.3		4.3
Other Programs and Activities			356		314			-11.9		-11.6
	Subtotal		998		1,024			2.6		1.8
Net Interest on the Public Debt			92		95			3.3		3.3
		Total	1,091		1,119			2.6		1.9
Sources: Department of the Treasury; CBO.
a. Excludes the effects of payments that were shifted because of weekends or holidays.  Also adjusts 2006 Social Security outlays for corrections to amounts withheld for taxes on Social Security benefits.

Excluding calendar-related shifts in the timing of certain payments, outlays through February were about 2 percent higher than in the same period last year. That rate of growth is slightly below the 3 percent increase that CBO is projecting for the fiscal year as a whole, assuming enactment of the President’s budget proposals.

Substantial spending for flood insurance and disaster relief in 2006 has a significant effect on the year-over-year comparison. Such spending has declined by $24 billion relative to the high levels recorded in the wake of the 2005 Gulf Coast hurricanes. Excluding those programs and the $13 billion collected this year from an auction of licenses to use the electromagnetic spectrum, outlays were up by about 5 percent compared with spending in the first five months of 2006.

More than half of the 18 percent increase in Medicare outlays through February was due to spending for the new prescription drug program, which did not take effect until the second quarter of fiscal year 2006. The growth in Medicare spending will decelerate as that disparity diminishes over the coming months, resulting in an annual gain of 9 percent (adjusted for payment shifts), CBO estimates. Medicaid spending accelerated in January and February, pushing outlays 4 percent higher than in the first five months of 2006. Medicaid outlays will grow by about 7 percent in fiscal year 2007, CBO estimates, after posting a slight decline in 2006.

CURRENT ESTIMATES FOR FISCAL YEAR 2007 (Billions of dollars)
	CBO				OMB
Receipts	2,533				2,540
Outlays	2,747				2,784
Deficit (-)	-214				-244
Sources: Office of Management and Budget and CBO, assuming enactment of the President’s budget proposals.

Both CBO and the Office of Management and Budget (OMB) recently issued new estimates of the budget outlook for fiscal year 2007. CBO anticipates that the federal deficit will total $214 billion in 2007 if the President’s supplemental funding requests and other proposals are enacted. That shortfall would be equivalent to 1.6 percent of gross domestic product (GDP), the lowest level since 2002.

CBO’s estimate of the 2007 deficit is $30 billion lower than the shortfall projected by OMB. CBO’s estimates of both spending and revenues are lower than the Administration’s forecasts, by $37 billion and $7 billion, respectively. Roughly half of the difference in outlays results from CBO’s lower estimates of spending for defense and for disaster assistance and other activities related to hurricane recovery efforts. CBO also expects outlays for many other programs to come in below the levels projected by the Administration.

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Note: Unless otherwise indicated, the figures in this report include the Social Security trust funds and the Postal Service fund, which are off-budget. Numbers may not add up to totals because of rounding.
 

Prepared by Mark Booth, Chad Chirico, Barbara Edwards, and Kathy Gramp.