Happy U.S. Fiscal 2015 New Year!

After shrinking the budget deficit by 29 percent in fiscal year 2014, America did not get off to a good start in in fiscal year 2015.  According to the Treasury Department, the Federal Government spent $121.7 billion more than it took in during October.  This shortfall was 34 percent greater than the deficit a year earlier, and followed September’s surplus of $105.8 billion.

Increased government spending caused the substantial change.  Outlays were 15.5 percent greater than in the same period last year.  Fortunately, increased expenditures were primarily caused by the calendar.  November 1st fell on a weekend, so benefit payments for the military, veterans, social security, and Medicare were made in October instead of November.  Expect November’s outlays to diminish considerably.

Revenues firmed in the period.  Part of the 6.9 percent uptick from a year ago stems from the improving labor market and economy.  As a greater number of Americans join the workforce, tax collection grows.  Taxes paid by individuals grew 7.6 percent.  Also, corporate income taxes jumped 58.0 percent versus the same period last year.  While this is a large change on a percentage basis, companies pay much less in taxes than individuals, so the surge had a minimal influence overall.

Despite Congress not having a budget in place for fiscal year 2015, the Congressional Budget Office (CBO) expects the annual deficit to shrink this year.  Their projections are for the shortfall to be roughly 2.6 percent of gross domestic product (GDP) or $469 billion, down from $483.4 billion in fiscal 2014.  Unfortunately, 2015 is the last fiscal year in which CBO expects the deficit to shrink.  Between fiscal 2016 and 2024, CBO anticipates increasing budget shortfalls, reaching $960 billion or nearly 4.0 percent of GDP by the end of the period.  It is no secret that our nation is experiencing a demographic shift that will, all else equal, increase our country’s outlays as retiring Baby Boomers begin collecting various entitlements.  What remains a unknown is how America’s budgeting will adjust in order to accommodate the change.                (by C. Cox)