The editors of the Wall Street Journal give us the numbers:
The Congressional Budget Office reports in its April budget review that revenues rose 2% to $2.041 trillion in the first seven months of fiscal 2019 from a year ago. Payroll tax revenue rose 4.7% due in part to rising employment and wages.
Individual income taxes were essentially flat in the wake of the tax cut, but corporate income taxes were down only $7 billion for the first seven months to $114 billion despite the cut in the corporate tax rate to 21% from 35% in the 2017 tax reform. April was the deadline for final 2018 tax payments for most corporations, and tax revenue from higher corporate profits partly offset the lower rate.
Overall revenues increased despite a sharp decline in payments to the Treasury from the Federal Reserve of $15 billion, or 34%. The decline is due to higher short-term interest rates that lead the Fed to pay banks more interest on their reserves. Watch this account closely in the future if the Fed’s reserve payments become a net Treasury drain. This is one cost of the Fed maintaining a very large balance sheet.
That’s the revenue side. Here’s the expense side of the ledger:
So why has the federal deficit increased by $145 billion this fiscal year to $531 billion? Because federal spending continued to rise rapidly—7% in the first seven months to $2.571 trillion. That’s $178 billion more than in the same period a year ago. As you’d expect, Social Security benefit payouts rose 6%, Medicare outlays 5% and Medicaid 4%. Anyone who thinks federal deficits and debt can be contained without entitlement reform probably still believes in the Russian collusion story.
Defense spending rose 10%, or $33 billion, in the first seven months, as intended by Congress and the White House after eight years of neglect under Barack Obama. The higher outlays went for much-needed operations and maintenance and R&D. Outlays for the Pentagon are still only about 3.2% of GDP, which is close to the historic low since World War II.
Interest payments on federal debt held by the public rose 13% to $234 billion, due to higher short-term interest rates and more debt. The Fed’s zero-rate policy disguised the size of the debt’s budget burden during the Obama years, but it is now coming due.
The second responsibility of government is to restrain the rate of increase of its outlays to the increase in national income. If you are not willing to do that, you are not a moderate. You are not a conservative. You are not a liberal. You are either an authoritarian or simply irresponsible. Outlays are increasing far faster than the national income. Do the math.