Wednesday, November 9, 2011

Washington and Imbalance - Fiscal 2011 Final Tally and It's Not Pretty

The Congressional Budget Office has now released its final budgetary numbers for fiscal 2011 in their Monthly Budget Review for November 2011.  The news is not particularly good....but it could be worse.  When you are reading this posting, keep in mind the debt debacle facing Italy and Greece; while their economies are far smaller than the United States, the threat of their default has sent tremors through the world's bond and stock markets.

Washington ran up a total budget deficit of $1.299 trillion for fiscal 2011, up very slightly from $1.294 trillion in fiscal 2010 but down from $1.413 trillion in fiscal 2009 but still the second highest on record.  Since taking office, the Obama Administration has added $4.006 trillion to the sovereign debt of the United States (and yes, I realize that he inherited some of the problem from Bush II).  On the good news side, the deficit-to-GDP ratio declined from 9.0 percent in 2010 to "only" 8.7 percent in 2011; both years were down from the peak of 10.1 percent in 2009.  Here is a chart showing the fiscal year totals for the past 6 years:

Here is a graph showing both receipts and outlays as a percentage of GDP:

Note how federal government outlays have reached as high 25.2 percent of GDP, dropping to "just" 24.1 percent this year, well up from 18 percent in the early part of the millenium and up from 20 percent just prior to the Great Contraction.  This is a particularly critical piece of data; should Washington be forced to retrench its spending in an effort to balance its budget, there will be a marked impact on GDP growth since government spending is an ever increasing part of GDP.  In fact, if government cuts back spending, it is likely that GDP will actually shrink, resulting in an even higher debt-to-GDP ratio.

Also on the good news side, the deficit would have been about $140 billion lower than the deficit in 2010 due to non-recurring factors which include TARP payments, changes to deposit insurance premiums and the fact that the year end fell on a weekend meaning that some payments that are due in fiscal 2012 were paid in 2011.  Nonetheless, even with a deficit of $1.159 trillion, Washington has very little to be proud of.

As I noted in an earlier posting, government revenues have increased this year, but not because corporations are paying more in taxes.  Tax receipts from individuals was up 21.5 percent on a year-over-year basis from $899 billion to $1.091 trillion; on the other hand, despite a very profitable year, corporate tax revenue dropped from $191 billion to $181 billion, a 5.4 percent decline on a year-over-year basis.  The drop is largely because changes in legislation that allowed businesses to accelerate their deductions for depreciation were enacted.  Here is a quote from the Monthly Budget Review:

"Receipts from corporate income taxes, after matching 2010 collections through August, fell $10 billion short of the previous year’s total in September. Until that point, revenue increases stemming from higher profits had offset revenue reductions resulting from legislation that allowed businesses to accelerate their deductions for depreciation. Despite the decline from 2010 to 2011, corporate receipts were more than 30 percent above the 2009 amount, although they were only about half the amounts recorded in 2006 and 2007."

You can see even more of this information on changing corporate tax revenue in my earlier posting located here.  Thanks again for your contribution, Corporate America.

All of this revenue resulted in a net year-over-year increase in revenue of 6.5 percent, from $2.162 to $2.302 trillion as shown on this screen capture: 

Washington would like to thank all of you individual tax payers for your generosity!  

On the spending side of the ledger, total outlays rose by an unadjusted 4.2 percent on a yeara-over-year basis from $3.456 trillion to $3.601 trillion in fiscal 2010.  Once again, taking out extraordinary, one time only items, spending would have only increased by 1.8 percent for the entire year.  Here is a screen capture showing where your hard-earned tax dollars went:

A couple of numbers jump out.  The drop in unemployment benefits is rather astounding; payments dropped from $162 billion in fiscal 2010 to $126 billion in fiscal 2011, a year-over-year decline of 22.2 percent.  This is despite a stubbornly high headline unemployment rate of 9 percent plus.  With unemployed Americans using up their eligibility, they are simply falling off the government's tab.  Unfortunately, Washington appears to be unable to gain the political momentum to actually fix this particular problem.  

Spending increases were noted in Net Interest on the Public Debt which rose from $228 billion in fiscal 2010 to $266 billion in fiscal 2011, a year-over-year increase of 16.6 percent.  Net interest costs on the debt alone rose from 1.6 percent of GDP to 1.8 percent of GDP despite the generational lows in interest rates.  The increase in interest is due to the mounting level of the federal debt which is just about to hit the $15 trillion mark as shown here:

Social Security, Medicare and Medicaid spending was up just over 3 percent from the previous year, down from the 6 percent level the previous year and 7 percent average over the past 5 years.  Washington proudly notes that these cost savings were achieved because the legislated increases in the federal share of Medicaid's costs expired and because, for the second year in a row, there was no cost-of-living adjustment for those souls that collect Social Security.  Yeah seniors, thanks for your contribution...and welcome to our collective futures!  Outlays for all 3 programs reached 9.8 percent of GDP, certainly a number that will be surpassed as baby boomers look to collect their entitlements.

With the federal debt soon to pass both the $15 trillion and the 100 percent of GDP marks, it will be interesting to see if Washington is able to muster the cajones to actually make meaningful changes to the way that it does business or if American taxpayers will be seeing even worse Monthly Budget Reviews in the months and years ahead.  My suspicion is that what we are seeing now, will be pretty much "business as usual" in the future.  The readjusted estimates for October already show a deficit of $125 billion for a single month.  This movie is not going to end well.


  1. Thanks again for the clear representation of the numbers. The growing debt service is a huge worry, since we're not close to reversing that trend. I think we need both tax increases and spending cuts to stop our build-up in debt, but the politicians and even the public doesn't seem to see it that way.

    But I'm not desperately worried. Sometimes things have to get worse before we prod ourselves to make them better.

  2. I am glad to determine that provincial debts is now getting highlighted together with our federal