Surging revenues have been a major windfall - will it continue?
This article first appeared on SchiffGold.
The Treasury ran a budget deficit of $193B in the month of March. This exceeded the 12-month average of $144B.
Over the last year, the Treasury has seen a massive influx of Individual tax revenues that has helped support the ballooning Federal Deficit. Unfortunately, spending has been so high that the additional revenue did not give much reprieve, causing the Treasury to borrow $2.27T over the last 12 months.
April will generally see a surge in tax revenues since April 15 is the tax filing deadline. It will be interesting to see if this trend holds or if refunds will overwhelm revenue. Considering the massive backlog, it may take a few months for the data to flush out.
Figure 1: Monthly Federal Budget
The Sankey diagram below provides a look at spending and revenue. The deficit represented 37.7% of total spending which means that revenue only covered 62.3% of total expenditures. The full deficit represented nearly all of Income Security and Social Security combined!
Figure 2: Monthly Federal Budget Sankey
Comparing the monthly (above) to the yearly (below) shows that the current monthly deficit is actually larger than the TTM deficit on a relative basis (37.7% vs 28%). Individual taxes were noticeably smaller in the current month, representing ~30% of total revenue vs 37.8% for the TTM.
Figure 3: TTM Federal Budget Sankey
Figure 4 below, expands on the revenue side of Figure 1 above. Individual tax revenue has almost doubled for the month of March when compared to previous years. The past 5 years show March Individual tax revenue:
The Treasury does not provide much detail beyond these numbers, so it’s hard to know if it’s being driven by higher wages, capital gains, or something else. Regardless, the surge is very noticeable. Next month should give a good indication on just how much benefit the Treasury will gain from the increased revenues.
Figure 4: Monthly Receipts
The expense side is a bit steadier month over month. The Treasury has found a zone of spending around $500B a month (a casual $6T a year) across a range of services.
Figure 5: Monthly Outlays
The table below goes deeper into the numbers of each category. The key takeaways from the charts and table:
Outlays
Receipts
Total
Monthly and Average Monthly Comparison | Trailing Twelve Month (TTM) Comparison | |||||||||
Category | Mar 2022 | Mar 2021 | TTM Avg Monthly | YoY % Change | TTM % Change | TTM Ending | TTM Ending | TTM Ending | TTM | TTM |
Outlay | ||||||||||
Social Security | -102.6 | -94.3 | -97.4 | 8.7% | 5.4% | -1,168.3 | -1,117.0 | -1,071.6 | 4.6% | 9.0% |
Income Security | -96.0 | -452.6 | -94.3 | -78.8% | 1.7% | -1,132.0 | -1,977.9 | -519.3 | -42.8% | 118.0% |
Health | -86.0 | -70.6 | -72.9 | 21.9% | 18.0% | -875.0 | -833.0 | -599.7 | 5.0% | 45.9% |
National Defense | -65.1 | -70.3 | -62.5 | -7.3% | 4.2% | -750.2 | -741.8 | -711.8 | 1.1% | 5.4% |
Medicare | -56.2 | -58.0 | -58.2 | -3.1% | -3.4% | -698.1 | -791.4 | -671.3 | -11.8% | 4.0% |
Other | -54.2 | -53.6 | -61.6 | 1.3% | -11.9% | -738.7 | -843.3 | -505.1 | -12.4% | 46.3% |
Net Interest | -43.2 | -31.3 | -32.9 | 38.2% | 31.4% | -394.4 | -314.6 | -384.8 | 25.4% | 2.5% |
Education & Social Services | -7.2 | -15.7 | -26.3 | -54.4% | -72.7% | -315.3 | -246.4 | -138.7 | 28.0% | 127.3% |
Housing Credit | 2.7 | -80.8 | -10.5 | -103.3% | -125.6% | -126.2 | -749.6 | 7.0 | -83.2% | -1,000.0% |
Receipt | ||||||||||
Taxes - Excise | 7.4 | 6.4 | 7.0 | 15.4% | 6.7% | 83.5 | 77.3 | 89.5 | 8.0% | -6.7% |
Corporation Income Taxes | 10.2 | 15.3 | 32.9 | -33.2% | -69.0% | 394.7 | 232.0 | 246.5 | 70.2% | 60.1% |
Miscellaneous Receipts | 15.1 | 10.2 | 12.4 | 48.6% | 21.5% | 149.2 | 129.1 | 90.8 | 15.6% | 64.4% |
Other | 16.5 | 10.3 | 16.3 | 60.5% | 1.7% | 195.0 | 139.0 | 138.9 | 40.3% | 40.4% |
Social Security Taxes | 115.4 | 105.2 | 108.1 | 9.7% | 6.7% | 1,297.4 | 1,279.1 | 1,229.2 | 1.4% | 5.5% |
Individual Income Taxes | 150.6 | 120.3 | 195.3 | 25.2% | -22.9% | 2,344.1 | 1,663.9 | 1,763.5 | 40.9% | 32.9% |
Total | ||||||||||
Outlay | -507.9 | -927.2 | -516.5 | -45.2% | -1.7% | -6,198.2 | -7,615.1 | -4,595.3 | -18.6% | 34.9% |
Receipt | 315.2 | 267.6 | 372.0 | 17.8% | -15.3% | 4,464.0 | 3,520.4 | 3,558.4 | 26.8% | 25.5% |
Total | -192.7 | -659.6 | -144.5 | -70.8% | 33.3% | -1,734.2 | -4,094.7 | -1,036.8 | -57.6% | 67.3% |
Data as of: Mar 2022. % Changes are capped at 1,000%. | ||||||||||
Zooming out and looking over the history of the budget back to 2007 shows how extreme the last two years have been. The chart below shows the data on a TTM basis to smooth out the lines.
As can be seen on the far right, Expenses have fallen rapidly even while receipts continue to move up. It’s hard to imagine this trend will continue given a looming recession and rapidly rising rates. A recession would cause revenues to fall and spending to increase, while rising rates will increase the cost of the federal debt.
Figure 6: Trailing 12 Months (TTM)
The next two charts zoom in on the recent periods to show the change when compared to pre-Covid. Once again, the surge in Individual and Corporate Taxes has become very clear. The last 12 months has produced revenues well above the previous 6 years. Can this trend hold?
The revenue surge is most likely a delayed affect to the massive federal spending seen. As the stimulus checks dry up, it will be hard for the government to keep tax receipts elevated.
Figure 7: Annual Federal Receipts
The expense side also shows an improving picture. But again, will it last? It’s unlikely that spending will get back to pre-pandemic levels. Not to mention, pre-pandemic spending was still unsustainable.
Figure 8: Annual Federal Expenses
With surging tax revenues and a decrease in spending when compared to the last two years, the deficit will shrink. That does not mean everything is okay. Prior to Covid, the TTM deficit compared to GDP had been trending up towards 5% before exploding to 18.6%. It has since come down to 7.2% very rapidly. It may come down a bit more in the months ahead, but will almost certainly climb back upwards as stimulus fully wears off.
Note: GDP Axis is set to log scale
Figure 9: TTM vs GDP
Finally, to compare the calendar year with previous calendar years, the plot below shows the YTD figures through March. The surge in revenues is again very noticeable. This has caused the budget deficit to come in below where it has been in many years past as shown by the red bar.
For example, by March in 2018 and 2019 the budget deficit was $374B and $372B vs “only” $290B in the current year.
Figure 10: Year to Date
Based on the current data, the budget deficit does look to be in better shape when compared to the last several years, even pre-pandemic. Next month will be a true indicator on how well this year is playing out since April tends to be the biggest revenue month of the year for the Treasury. Will they owe greater refunds than years past?
Regardless, the Federal government is still miles away from a budget surplus. Furthermore, a recession and rising rates could both prove very challenging for the Federal Deficit. It’s probable that the Treasury is enjoying a reprieve that will soon end. With rising rates, the tax revenues will get sucked up into interest payments.
How long until the Fed has to reverse course and support the Federal Deficit? Right now, the path looks okay, but that could change very quickly. Gold and silver will provide ultimate protection when the deficits begin exploding again and the Fed capitulates.
Note: Everything is relative. A $290B deficit through March is still extremely large by historic standards. It is however, also smaller than what many would have expected.
Data Source: Monthly Treasury Statement
Data Updated: Monthly on eighth business day
Last Updated: Period ending Mar 2022
US Debt interactive charts and graphs can always be found on the Exploring Finance dashboard: https://exploringfinance.shinyapps.io/USDebt/