Deficit dismay: Federal tax revenue plummets, even as Uncle Sam keeps spending

Uncle Sam’s tax collections were down 26% in April compared to last year at the same time, according to new estimates Monday by the Congressional Budget Office that offer a worrying picture about the state of government finances.

The fiscal year is only a little more than halfway over and the government is quickly nearing $1 trillion in new deficits, CBO said. And the pain is on both sides of the ledger, with spending rising and revenue falling.

Since the start of the fiscal year in October, the government has collected $2.686 trillion and spent $3.614 trillion, for a deficit of $928 billion. During the same period in fiscal 2022, the deficit was just $360 billion.

Things were particularly bad in April, which is usually the government’s best month, with individual income taxes due and usually a large surplus.

But this year revenue tumbled, falling to $638 billion, down substantially from $864 billion in fiscal 2022.

CBO said individual income tax payments were down 36% in April. Payroll and corporate income taxes are both up, but nowhere near enough to offset the drop in individual payments.

CBO was left guessing about the cause.

“The reasons for the difference will be better understood as additional information becomes available, but one reason could be lower-than-expected realizations of capital gains last year,” CBO said.

But even as Uncle Sam is taking in less, he’s still spending more.

CBO said outlays — the amount that Treasury has paid for programs, benefits and expenses so far this fiscal year — is up 8%.

The biggest new expense is interest on the debt, which has already cost the government an extra $107 billion so far this year. The big entitlement spending programs — Social Security, Medicare and Medicaid — also ballooned, rising $159 billion over the last seven months compared to fiscal 2022.

The result is that the government so far this fiscal year has spent $3.614 trillion, up from $3.346 trillion in 2022.

CBO in February had projected that the government would end the year with a $1.394 trillion deficit.

But on Monday it said the revenue picture is down $250 billion compared to that February estimate.

The new numbers come as Congress and President Biden are fighting over the government’s debt limit. Debt is the accumulation of deficits, and the Treasury Department is bumping up against the total debt-carrying capacity Congress has set.

Without an increase, the government could run out of room to maneuver early next month.

Should that happen, the Treasury Department says it would be forced to suspend payments, in what would largely be considered a default on the national debt.

Mr. Biden has asked for more borrowing room without any strings attached. Congressional Republicans say they will not allow a “clean” debt increase, and any rise must be coupled with changes to alter the unsustainable trajectory of government finances.