April budget surplus sets record, but it's doesn't change long-term deficit projections
As the White House prepared to formally call upon Congress to take back $15 billion in unused federal appropriations, the Congressional Budget Office (CBO) announced Monday that the government collected more money in tax revenue than expected in April, generating the largest one-month budget surplus in U.S. history.
The CBO’s monthly budget review for April estimated that the federal government realized a surplus of $218 billion in April, $35 billion larger than the surplus the previous April. Total receipts collected in April were $30 billion to $40 billion more than CBO expected, primarily due to “larger-than-anticipated payments of individual income taxes.”
In the first seven months of fiscal year 2018, income tax withholdings were up by $54 billion over 2017, an increase CBO believes is driven by higher salaries. Gains were offset somewhat by reduced shares of income withheld beginning in February under the Tax Cuts and Jobs Act.
While revenues were up by 4 percent over the same period in fiscal year 2017, outlays have risen by 5 percent in 2018 due to increases in net interest on the public debt, social security benefits, defense spending, and disaster relief funds. Total spending last month was $24 billion higher than in April 2017.
“What it shows is the change from last year is not all that dramatic,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center.
Budget experts cautioned against drawing sweeping conclusions from one month of data, but this does represent one more piece of evidence that the economy is strong. April is historically a strong month for tax revenues, so the significance of these number will be clearer once more detailed information is available later in the year.
“April, there’s always a surplus because people are paying their taxes, so there’s nothing that unique about it,” said Josh Gordon, policy director for the Concord Coalition. “I think the only slightly noteworthy thing is that the revenues were a little bit higher than CBO anticipated. It just shows what we all kind of know, that the economy is doing well.”
Pointing to the still-dire long-term budget outlook, Akabas warned that focusing on the surplus could lull people into a false sense of fiscal security.
“It’s very counter-intuitive because there’s a whole narrative, which I believe is very important and accurate, that we are on an unsustainable fiscal course,” he said, “but at the same time we have the biggest monthly surplus on record.”
Experts see nothing in the April report to alleviate concerns about unfunded tax cuts, increased military and domestic spending, and ballooning entitlement programs. The CBO has estimated the individual and corporate rate reductions will increase the federal debt by $1.9 trillion over a decade.
“I just don’t take a one-month anything to mean anything really,” Gordon said. “It’s just not as important as the 10-year projection.”
The April budget review was released a month after the CBO published its latest 10-year economic projections, which predicted $12.4 trillion in additional debt over the next decade. The CBO expects the budget deficit for fiscal year 2018 to reach $800 billion, with annual deficits exceeding $1 trillion in 2020.
“The CBO reassesses two or three times a year,” Gordon said. “I would not jump ahead of the CBO.”
Akabas agreed that too many variables are at play month-to-month for even a record-breaking April to represent a change in the economy’s trajectory.
“I think we need quite a bit more data to come in before taking a step back and reevaluating what the projections are,” he said.
The CBO’s current 10-year outlook anticipates 3.3 percent economic growth in 2018, with growth slowing to approximately 2 percent by 2020. Those figures do not account for a recession, though, and, considering the current economic expansion is already one of the longest in U.S. history, Akabas and Gordon both see a downturn within that timeframe as inevitable.
“We should not be hoping economic growth takes care of our budget problem over the next 10 years,” Gordon said.
News of the April surplus came one day before the Trump administration submitted to Congress a rescission request it says is aimed at reining in federal spending. Prospects of passage in a narrowly-divided Senate remain unclear, but experts are skeptical the $15.4 billion Trump wants lawmakers to claw back will have any impact on budget deficits.
The rescission process was commonly exercised by the White House from its creation in 1974 through 2000, but the last two presidents never used it. Once Trump’s proposal is delivered to Congress, the funding in question will be frozen for 45 days.
In that time, Congress can accept, reject, or reduce Trump’s demands with a simple majority vote in both chambers. If Congress does not act at all, the proposal expires and the funds must be spent as appropriated.
Though administration officials and some House Republicans have recently discussed rescinding pieces of the $1.3 trillion budget deal Trump signed in March, the current request consists entirely of funds from about 30 programs that had been previously authorized and never spent.
The $15 billion package includes:
- $5 billion in funds for the Children’s Health Insurance Program (CHIP) authorized for 2017 that the administration can no longer legally spend
- $2 billion from a contingency fund for states with higher-than expected CHIP enrollment
- $4.3 billion from the Advanced Technology Vehicle Manufacturing loan program
- $800 million from the Center for Medicare and Medicaid Innovation program
- $252 million authorized to fight the 2015 Ebola outbreak
- $133 million from unemployment benefits for railroad workers
- $107 million for watershed rehabilitation programs authorized in response to 2012’s Superstorm Sandy
The Trump administration maintains that the CHIP funds targeted are no longer needed, but trying to cut $7 billion from a program benefiting needy children has already spurred vocal opposition from Democrats.
“This proposal is a shameful betrayal of children,” Sen. Bob Casey, D-Penn., said on Twitter Monday. “This Administration and congressional Republicans passed a massive tax giveaway to their donors and big corporations, and now they want vulnerable children to pay for it.”
“It appears that sabotaging our health care system to the detriment of middle-class families wasn’t enough for @realDonaldTrump & the GOP; now they’re going after healthcare dollars millions of children rely on, especially during outbreaks of the flu & other deadly illnesses,” Senate Minority Leader Chuck Schumer, D-N.Y., tweeted.
Some Republicans have applauded Trump’s plan and encouraged him to cut more, while others are resistant to reneging on negotiated appropriations. With limited work days before the end of the fiscal year under the growing shadow of the midterm elections, the Senate may not be willing to devote much time to taking back authorization for funds the government is not spending.
“The #Rescission package delivered to Congress by @realDonaldTrump & the @WhiteHouse is a welcome first step as we work toward restoring fiscal order,” said Rep. Jody Hice, R-Ga. “While there’s more to be done to counteract years of wasteful spending, I applaud the Trump Administration for taking this action.”
In calling for bipartisan support, the White House has cited comments made in April by House Minority Whip Steny Hoyer, D-Md., saying he “wouldn’t irrationally oppose a rescission which said we have had money lying in an account that has not been spent in one, two, three years.” However, Hoyer immediately rejected Republicans’ rescission package Tuesday, calling it “another example of their hypocritical attitude toward deficits.”
“After ballooning deficits to over a trillion dollars a year for the next decade with their tax scam, Republicans cannot be taken seriously when they claim we need to cut $15 billion from key programs in the name of fiscal responsibility,” Hoyer said in a statement, suggesting the proposal was about “political messaging” rather than fiscal discipline.
According to Gordon, reviving the rescission process could be a good way for the president to tidy up the budget and eliminate waste, as administrations did from Nixon to Clinton, but Trump’s current request may not accomplish that.
“The rescission is such a small amount that I don’t take it as an indication that Congress and the president are taking the long-term seriously,” he said, “because it’s just a drop in the bucket.”
Akabas had not yet studied the specifics of Trump’s proposal, but if the funds in question are truly unnecessary, he considers it appropriate for Congress to examine whether to rescind them.
“There’s a point in taking a closer look certainly at the dollars that are no longer authorized to be spent,” he said.
According to the Washington Post, White House officials plan additional rescission requests later this year, including some funding authorized in the $1.3 trillion budget agreement. In total, they are reportedly aiming for $25 billion in cuts.
The importance of Tuesday’s request may depend on whether it manages to pave the way for those future rescission proposals from Trump and how substantive the cuts they contain turn out to be.
“I would be worried that this is all the administration is putting forward to deal with the budget,” Gordon said. “In that case, it would be more of a smoke screen than an accomplishment.”
If Trump truly does want to use rescission to scale back the spending deal he reluctantly signed in March, his ambitious plans could promptly collide with political reality.
“I think the problem is that the closer they get to actual spending programs and cutting actual spending programs, the further away they get from any chance that Congress will accept their proposal,” Gordon said.