July tax filings boost revenue, but FY 2020 budget deficit $2.8T

Shift in filing date led to huge jump in taxes coming in last month.

WASHINGTON — America’s federal deficit fell dramatically from June to July, a decline driven primarily by the payment of taxes that had been delayed earlier this year due to the coronavirus pandemic.

The U.S. budget deficit came in at an astonishing $864 billion for the month of June, a record in U.S. history, due mostly to a massive increase in federal spending in response to the pandemic. But in July, the one-month gap between federal spending and revenue was just $63 billion, the Department of Treasury said Wednesday.

The budget deficit for the fiscal year, which began in October, is now a record $2.8 trillion.

Budget experts say the vast majority of the decline in the monthly deficit is the result of the delay of the federal tax deadline this year from April to July. That shift resulted in a huge increase in tax revenue coming into the U.S. Treasury in July. Typically, April represents the only month in which the Treasury sees a large revenue surplus, but the filing deadline was postponed this year to give taxpayers more time.

“We are seeing a huge influx of taxes that would otherwise be paid in April,” said Marc Goldwein, senior vice president at the nonpartisan Committee for a Responsible Federal Budget, of the decline in the monthly budget deficit. “The vast majority of the lower deficit is driven by the delay of tax season.”

A small partof the declinein the deficit is due to modestly improving economic conditions. Employers’ payments of withheld taxes

— one measure of how much economic activity is translating into tax revenue — rose slightly, by about 4%, from $187 billion in June to $195 billion in July, according to Goldwein. But payments of withheld taxes this June, although an improvement from last month, still remain about 7% lower compared with this time last year. “That’s kind of consistent with what we think is happening with the economy,” Goldwein said.

Other experts noted the deficit is still on track to be much higher than last year. Brian Riedl, a budget analyst at the conservative-leaning Manhattan Institute, pointed out April 2019 saw a $160 billion surplus as taxes were paid that year, a far higher number than this year’s tax filing month.

On a year-to-date basis, the federal deficit remains roughly $2 trillion higher than last year — a more than 200% increase. Congress has approved an additional $3 trillion in spending to fight the pandemic, and lawmakers are currently weighing whether to spend more money to combat the downturn.