US Records First Budget Surplus Since August Thanks to Tax Filing Season

The National Debt Clock in Washington on Nov. 13, 2023. (Madalina Vasiliu/The Epoch Times)

The U.S. government recorded a $210 billion budget surplus in April as Washington received a boost in revenues from Americans filing their annual tax returns, new Treasury data showed on May 10.

Last month’s federal surplus, which is common for this time of the year, was 19 percent higher than it was at the same time a year ago. In the first seven months of fiscal 2024, the budget shortfall totals $855 billion.

Outlays climbed by 23 percent year-over-year, to $567 billion, with Social Security ($122 billion), net interest ($85 billion), and Medicare ($74 billion) driving federal spending.

Receipts ballooned by 22 percent year-over-year to $776 billion amid higher tax revenues from individuals and businesses during the filing month.

According to the Congressional Budget Office’s (CBO’s) latest Monthly Budget Review, the fiscal year-to-date shortfall would have been $929 billion if it were not for shifts in the timing of certain payments.

The federal deficit could be larger by the year’s end, too, according to the nonpartisan budget watchdog.

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“Although the deficit so far in fiscal year 2024 is smaller than the shortfall during the same period last year, it appears likely that the deficit for the full year will end up being larger,” the monthly review stated.

The rolling federal deficit has totaled $1.7 trillion over the past 12 months, down $32 billion at the end of March, according to the Committee for a Responsible Federal Budget (CRFB). The rolling shortfall balloons to $2 trillion if the effects of student debt cancellation are removed from the equation.

The budget deficit represents about 5.8 percent of the gross domestic product, or 7 percent when omitting student debt forgiveness efforts as a share of the U.S. economy.

“Policymakers should work together to get the economy and our fiscal health back on track and can start by closing the gap between spending and revenue,” the CRFB said in a report.

Feeling the Interest

Interest charges have attracted more attention on Capitol Hill.

In fiscal 2024, spending on net interest payments has totaled $514 billion, up 36 percent from the same time a year ago.

Additionally, officials estimate that gross interest on Treasury debt securities will exceed $1.1 trillion for the full fiscal year.

Federal borrowing is no longer as cheap as it was during the pandemic, economists at the Peter G. Peterson Foundation said.

“As the Federal Reserve increased the federal funds rate, short-term rates on Treasury securities rose as well—making some federal borrowing more expensive,” the group stated on May 8. “Expectations about short-term rates and inflation have already pushed up longer-term rates as well.”

As these payments accelerate amid higher interest rates and debt issuance, they are using a greater share of tax receipts. Interest costs already eat up about one-third of the federal income taxes collected.

With more debt and deficits expected in the coming years, the growth in interest payments will take up more revenues, the CBO says.

According to the CBO’s 2024 Long-Term Budget Outlook, interest payments would total about $77 trillion over the next 30 years and account for more than one-third of all federal revenues by 2054.

In addition, interest costs would become the biggest outlay for the U.S. government in the next three decades, exceeding defense and Social Security.

However, while some experts assert that pro-growth policies might help ease some of Washington’s fiscal pressures, the CBO warned that rising interest charges could threaten public investments in non-defense infrastructure, education, and research and development.

The Federal Reserve’s Role in Rates

Because of the ever-growing interest payments, which are on track to hit $1 trillion this fiscal year, the Federal Reserve might be tempted to cut interest rates.

Central bank officials have stated that rate cuts are coming but warn that they might remain high for a longer time amid sticky and stubborn inflation.

Minneapolis Fed President Neel Kashkari noted at the Milken Institute’s 2024 conference and in an essay that the institution would not rule out a rate hike should inflation persist and the data warrant greater restrictive monetary policy.

“The bar to raising is quite high, but it is not infinite,” Mr. Kashkari said.

In an interview with CNBC, Freddie Lait, a fund manager at Latitude Investment Management, said that the Fed would potentially consider a rate cut to ease the U.S. government’s interest burden.

“From the way we have thought about it for the last 15 years, and I think for longer, too, there is no economic rationale for cutting,” Mr. Lait told the network’s “Squawk Box Europe” on May 1. “The reason they might cut is because the U.S. government can’t afford [to have no cut] — and that’s a much scarier reason to have to cut.”

The futures market is penciling in two quarter-point rate cuts this year, beginning in September, according to the CME FedWatch Tool.

Trump Tax Cuts Debate

President Joe Biden has vowed to allow his predecessor’s tax cuts to expire at the end of 2025 should he be reelected in November.

The CRFB asserted in a separate analysis that extending the individual and estate tax provisions of the Tax Cut and Jobs Act, or TCJA, would add about $3.4 trillion to the national debt before interest.

“This does not account for the economic impact of extensions, which might reduce or increase output but would almost certainly put significant upward pressure on interest rates and could help to accelerate a future debt spiral,” the analysis stated.

White House National Economic Council Director Lael Brainard said at a Brookings Institution event that the federal government needs to end the “costly” 2017 tax breaks for the ultra-wealthy and corporations.

“At minimum, we should avoid making the fiscal hole created by Republican tax cuts deeper,” Ms. Brainard said on May 10. “We should use the 2025 tax debate as an opportunity to raise revenue overall.”

Despite concerns surrounding shrinking receipts, Office of Management and Budget data show that revenues have increased by more than 33 percent since former President Donald Trump’s tax cuts went into effect in 2018, topping $4.44 trillion last year.