U.S. budget deficit swells in May

Revenue down 21% compared with year ago; spending up

The federal government’s monthly budget deficit nearly quadrupled to $240 billion in May and revenue fell by 21% compared with a year earlier.

This was the U.S. Treasury’s first budget report since the government reached a deal June 3 to suspend the debt limit through 2025.

Revenue dropped in May to $307 billion from $389 billion a year earlier, while the federal government’s spending has recently been trending upwards.

Last month, Arkansas economist Michael Pakko said revenue appeared to be falling short compared with a year earlier because of strong income gains in the first half of fiscal year 2022, some of which could have been attributed to covid payments still flowing through the system at the tail end of fiscal year 2021.

Mervin Jebaraj, director for the Center for Business and Economic Research at the University of Arkansas, said wages were increasing in May last year, but said this week that wage increases have moderated some compared with last year.

The federal deficit for the first eight months of the fiscal year was $1.165 trillion in May, up from $925 billion in April; the monthly federal deficit jumped to $240 billion in May after a surplus of $176 billion was reported in April on the heels of tax season.

Spending on Medicare also jumped from $21 billion in April to $72 billion in May.

“I think broadly, the increase in the deficit, or the deficit so far this year was more on par with what economists expected it to be,” Jebaraj said.

“From last year to this year, one of the reasons the deficit increased has to do with the fact that taxes were processed later last year, you had more income tax collection in May, so you had more income tax collection in May as opposed to April in 2022 because of delayed processing last year. There weren’t as many delays this year.”

Jebaraj also pointed to rising interest rates on the government’s debt and its efforts to shore up banks in the wake of bank failures in spring as reasons for the increasing federal deficit.

“Other reasons probably had to do with the increase in financing the deficit and debt in general from last year to this year, the interest rate the government pays on debt has gone up this year, so that costs more money,” Jebaraj said.

“And then there’s been some extraordinary actions from the FDIC (Federal Deposit Insurance Corporation) to help banks out, so that obviously costs the government money this year compared to last year, but that is money that will eventually come back … it won’t be permanent.”

California-based Silicon Valley Bank was shut down in March; the FDIC responded to this and other subsequent bank failures by setting up a system to allow other banks to borrow from the FDIC through a special window the agency set up to help get them through this time, Jebaraj said.

The national debt had increased to $31.9 trillion as of Thursday.