US Budget Deficit Shrinks $1.6 Trillion on Record Tax Surge

US Budget Deficit Shrinks $1.6 Trillion on Record Tax Surge

The US federal government’s budget deficit has shrunk by some $1.57 trillion so far this fiscal year, driven by record receipts from a strong economy and a slowdown in spending as pandemic-era programs fade.

The deficit dropped to $360 billion over the seven months from October through April 2022, according to Treasury Department data released Wednesday.

Receipts were $2.99 trillion in the fiscal year-to-date, up from $2.14 trillion a year ago, boosted by strong growth in employment and wages, a Treasury official said during a call with reporters. Receipts just for April — the month individual tax returns are due — amounted to $864 billion, the highest for any month on record.

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Spending fell to $3.35 trillion in the fiscal year through April, down from $4.08 trillion a year ago, helped in part by the rolloff of pandemic-related benefits to households and businesses.

The Treasury has spent $350 billion in interest payments on federal debt since the start of the fiscal year in October, $76 billion more than in the previous period. Most of that increase is due to additional costs tied to inflation-linked securities, Treasury officials said. The weighted average yield on debt securities was 1.66% at the end of April, barely changed from 1.65% a year before.

Meantime, the Treasury enjoyed further revenues from transfers made by the Federal Reserve — $71 billion so far this year, up from $49 billion the previous year. That’s mainly earnings on the Fed’s securities holdings.

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Treasury officials said that net transfers from the Fed are expected to start coming down, however, as policy makers hike interest rates and the Fed consequently starts paying more on bank reserves parked at the central bank. The Fed’s shrinking bond portfolio will also erode its receipts over time.

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