US Deficit outllok is slightly better, but still YUGE and growing in 2019

Late last week, the Congressional Budget Office released their updated outlook on the federal budget and its associated deficits. This was an update many were looking for to see if much had changed from the trillion-dollar deficits forecast to hit within the next 2 years.

While the numbers are still high and largely unchanged for the 2019 fiscal year, the CBO says that the deficit picture has slightly improved since the last report in January.

CBO currently projects a deficit for 2019 of $896 billion, only $1 billion smaller than the deficit it projected in January. The cumulative deficit projection for the 2020–2029 period has dropped by $249 billion (or 2 percent), largely as a result of a $333 billion decrease in outlays, which is partially offset by an $84 billion reduction in revenues.

So while 2019 will have a deficit more than $200 billion above what was projected before the Tax Scam became law, that gap is a little smaller in the future years due to those lower projected outlays.

Part of the lessening of the long-term budget deficit comes from the CBO estimating that Social Security costs will be $135 billion less over the next 10 years than what was previously estimated. This corresponds with last month’s report from Social Security’s trustees which said that Social Security be able to pay full benefits through 2035 – one year more than what they claimed last year.

The other part of the reductions in projected spending are a result of lower premium increases being limited by the Affordable Care Act and less Medicare spending. And because fewer people are on Medicaid as the country’s economic expansion reaches its 10th year.

Health Insurance Subsidies and Related Spending. CBO and the staff of the Joint Committee on Taxation (JCT) reduced their projections of outlays for subsidies for health insurance purchased through the marketplaces established under the Affordable Care Act and related spending by $67 billion (or 9 percent), on net, over the 2020–2029 period. That decrease in outlays is mostly related to two factors, each of which explains roughly half of the total change. First, the current projections reflect lower projected premiums for health insurance purchased through the marketplaces in 2021 and later years; the revision is based on additional information about how insurers set premiums for 2019 and lower projections of future growth in health care costs per person. Those lower estimates of premiums led to a reduction in the estimated costs to the government of subsidizing premiums over the 10-year period. Second, the estimated share of the premium tax credits recorded as reductions in tax liability rather than outlays for refundable tax credits has been increased. However, that change is fully offset by a reduction in net receipts (see the discussion below about technical changes to revenue projections).

Medicaid. Technical updates led CBO to lower its 10-year projection of spending for Medicaid by $49 billion (or 1 percent) from January estimates. That reduction is largely the net result of three changes. First, lower projections of enrollment in the Supplemental Security Income (SSI) program reduced projected Medicaid enrollment (because enrollment in SSI confers automatic enrollment in Medicaid). Second, slower projected growth in per capita prescription drug costs reduced projected spending. Third, data on activity in 2018 showed more spending in faster-growing service categories than CBO projected in January, leading the agency to increase its projections of outlays in future years, partially offsetting the reductions described above.

Medicare. For technical reasons, CBO decreased its projection of Medicare outlays by a net of $9 billion (or 0.1 percent) over the 2020–2029 period. That net reduction is the result of a decrease in spending for Part A (Hospital Insurance) and Part B (Medical Insurance), partly offset by an estimated increase in costs for prescription drugs covered under Part D. Actual spending for the first half of 2019 was less than CBO projected in January; in response, CBO revised downward its projections of Medicare spending for Parts A and B over the next decade by $39 billion (net of offsetting receipts), or less than 0.5 percent. Conversely, CBO increased its estimates of spending for Part D (prescription drug coverage) by $30 billion. That increase includes the effect of a proposed rule that would require the prices pharmacies charge beneficiaries to reflect discounts that pharmacy benefit managers had negotiated for particular drugs.

On the revenue side, the CBO didn’t look at updated economic forecasts, so all we had was a relatively tiny adjustment related to health care coverage under the ACA.

Most significantly, CBO has lowered its projections of collections of penalty payments from employers that do not offer coverage meeting the Affordable Care Act’s standards as a result of new data from the Treasury showing less reported penalty liability for 2015 and 2016 than previously projected. That change, along with much smaller revisions to collections for risk adjustment and reinsurance, reduces projected revenues in the category of other miscellaneous receipts by $33 billion over the 2020–2029 period.

In addition, CBO has revised its projections of subsidies for insurance purchased through the marketplaces established under the Affordable Care Act. The estimated share of premium tax credits recorded as reductions in tax liability rather than outlays for refundable tax credits has been increased. That change reduces projections of net receipts from individual income taxes by $33 billion over the 2020–2029 period; the difference in receipts is offset by correspondingly lower outlays for the credits, as discussed above.

It's worth noting that this CBO projection didn't take into account changes in the economy (it assumes we grow just under 2% every year for the next decade) or what adjustments might happen to these figures due to returns during tax season. And that seems important because the CBO released its Monthly Budget Review for April today, which shows that the country's bottom line continues to be worse in 2019 than it was in 2018.

The federal budget deficit was $531 billion for the first seven months of fiscal year 2019, the Congressional Budget Office estimates, $145 billion more than the deficit recorded during the same period last year. Revenues were $33 billion (or 2 percent) higher and outlays were $178 billion (or 7 percent) higher than during first seven months of 2018.

However, outlays in the first seven months of last year were reduced by shifts in the timing of certain payments. If not for those shifts, the deficit for the first seven months of the past fiscal year would have been $44 billion greater, and the increase in the deficit so far for fiscal year 2019 would have been $101 billion rather than $145 billion....

Receipts collected through April 2019 were $30 billion to $40 billion (or 1 percent) less than CBO expected earlier this year when it published its January 2019 report on the budget outlook. Most of that shortfall stems from lower-than-anticipated withholding of individual income and payroll taxes in December 2018 and January 2019. Collections received and refunds paid during tax-filing season, from February through April, were largely as expected for individual and corporate income taxes. The sources of the shortfall will be better understood as more detailed information becomes available later this year.

That doesn't sound good. Even if you use the "adjusted base" that the CBO report mentions for 2018, we'd still be looking at a deficit 24% higher in 2019 than 2018 at this point. And the adjusted increase in the deficit of $101 billion is already more than the projected deficit increase of $73 billion, with few differences between the two years from here on in.

Need to print more bills when these guys don't pay taxes.

April typically gives Uncle Same a budget surplus for the month, because it's the month when many people make their tax payments if they owe money to the IRS on their returns (we were one of those this year). But even with more people writing checks to the IRS, the feds didn't make back as much as they did last year.

Adjusted US budget surplus
April 2018 +$169 billion
April 2019 +161 billion

And that's despite the CBO also reporting that the IRS received $6 billion more in direct payments of income and payroll taxes (likely reflecting the increased checks coming with tax filings), and income tax refunds being down by $12 billion for the Fiscal Year. Both help the US's budget balance, but it still wasn't enough.

These two reports indicate that while the GOP's Tax Scam may have given a minor bump in overall economic activity in 2018, it certainly is not "paying for itself", and the red ink is still on the rise. Add in the expanding income and wealth inequalities in the country, and you've got an economy that doesn't seem to have much organic or stimulative growth left to move it along for much longer.