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The total budget surplus for the first nine months of fiscal year 2001 was $167 billion, CBO estimates, about $10 billion less than for the same period last year. Because receipts from corporate income taxes were very low in June, the surplus for the full fiscal year is likely to be less than $200 billion.
 

The Treasury reported a deficit of $27.9 billion in May, about $2 billion less than CBO had projected on the basis of the Daily Treasury Statements. The difference was largely attributable to a downward revision in the Administration's estimate of the subsidy costs for certain loans and guarantees made by the Export-Import Bank.
 

CBO estimates that the surplus in June 2001 was about $30 billion--$26 billion less than in June 2000. Receipts fell by $12 billion, while outlays rose by about $14 billion.

Most of the decline in revenues occurred because receipts from corporate income taxes fell by about $11 billion, or 26 percent, from the amount in June 2000. Most corporations make a quarterly payment of estimated income taxes in June, reflecting their profits during the April-June quarter and their expectations of profits for the calendar year. The quarterly payments of corporate income taxes this June exhibited the largest percentage decline of any quarterly payments since 1983, when receipts were weakened by the 1981-1982 recession and tax cuts enacted in 1981. The decline in corporate income tax receipts is consistent with recent trends in measures of profits from the national income and product accounts, which showed substantial weakness for the fourth quarter of 2000 and the first quarter of 2001.

More than $4 billion of the increase in outlays was for major entitlement programs--Social Security, Medicare, Medicaid, and unemployment compensation. Another $3 billion resulted from differing revisions in estimates of credit subsidies. (Last June, the Treasury recorded a $1.8 billion reduction in subsidy costs associated with the auction of licenses to use the electromagnetic spectrum; this June, it recorded an increase of $0.9 billion in the subsidy costs of certain loans and guarantees of the Export-Import Bank.)
 

CBO estimates that the surplus for the first nine months of fiscal year 2001 was $167 billion--about $10 billion less than for the same period last year. For the first time this fiscal year, the cumulative surplus or deficit is less favorable than it was at the corresponding time in fiscal year 2000.

Although receipts were about $47 billion higher than at the same time last year, outlays climbed an estimated $57 billion. The outlays in 2001 reflect the fact that $7 billion in wages and benefits normally paid on October 1 were instead disbursed in September (the previous fiscal year) because October 1 fell on a weekend.
 

For the first nine months of fiscal year 2001, receipts were up by about 3.1 percent over the same period a year ago. Receipts from individual income taxes and social insurance taxes rose during the first nine months of the fiscal year by 4.7 percent and 6.6 percent, respectively, compared with the same period a year ago. Some of that increase, however, represents nonwithheld payments of liabilities from tax year 2000. Nonwithheld receipts of individual income and social insurance taxes increased by more than 9 percent during the first nine months of fiscal year 2001, boosted by strong payments from taxpayers' filings of 2000 tax returns.

Receipts that reflect recent economic activity have not been as strong. Compared with the same period a year ago, total withholding for individual income taxes and social insurance taxes rose by only 3.3 percent in the April-June quarter, after growing by 5.9 percent from October through March of this fiscal year. Over the entire October-June period, total withholding rose by 5.1 percent. In contrast, corporate income tax receipts fell by 9.2 percent, despite starting the fiscal year relatively strongly. Since February, they have fallen by 21 percent compared with the amount of receipts in February-June 2000.

Other receipts dropped by 6.6 percent, or about $8 billion, in the first nine months of this fiscal year, compared with the first nine months of fiscal year 2000. That decline occurred mainly because legislation enacted in 1999 caused the Federal Reserve to accelerate $3.8 billion in payments from fiscal year 2001 into fiscal year 2000. Other sources of receipts either fell slightly (excises, estate and gift taxes, and miscellaneous fees and fines) or remained just about at last year's level (customs duties).

The tax cuts recently enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 begin to reduce receipts this month. New withholding tables went into effect on July 1, and the Internal Revenue Service begins mailing rebate checks to taxpayers based on their 2000 tax liability later in the month.
 

CBO estimates that outlays for the first nine months of the fiscal year were 4.2 percent higher than in the same period last year. Adjusted for the payments that were shifted from October 2000 into September, the growth rate was about 4.7 percent.

Social Security, Medicare, and Medicaid accounted for over two-thirds of the increase in outlays. Spending for those programs in the first nine months of fiscal year 2001 was more than 7 percent higher than outlays during the same period last year. Spending for a number of other agencies and programs grew even more rapidly. In total, net outlays for the departments of Education, Energy, Health and Human Services (other than Medicare and Medicaid), State, and Transportation, unemployment benefits, international security assistance, the Universal Service Fund, and the Federal Deposit Insurance Corporation were up by about 19 percent over last year's levels. In contrast, spending for farm programs of the Commodity Credit Corporation was several billion dollars below last year's figure.

NOTE: Unless otherwise indicated, the figures in this report include the Social Security trust funds and the Postal Service fund, which are off-budget. Numbers may not add up to totals because of rounding.