The Final Tally for 2012: $1.09 Trillion Deficit
CBO's final Monthly Budget Review for FY 2012 came out today, showing the (preliminary) final estimate for the deficit that year: $1.09 trillion, or 7.0 percent of GDP. This figure is about $40 billion less than the $1.13 trillion deficit (7.3 percent of GDP) that CBO projected for 2012 in August and about $210 billion less than the $1.3 trillion (8.7 percent of GDP) deficit in 2011.
Compared to 2011, revenue was up by about $150 billion (6 percent) and outlays were actually down slightly by $60 billion (2 percent). Outlays fell due to the discretionary spending caps in the Budget Control Act, diminished spending in countercyclical programs as the economy continues to recover, and the expiration and winding down of some spending from the 2009 stimulus or extensions of its policies. Another factor is that October 1, 2011 occurred on a weekend, so some payments that would have been made in FY 2012 were pushed into FY 2011. This timing shift appears to total around $60 billion, meaning that the FY 2011 deficit would have been $60 billion lower and the FY 2012 deficit would have been $60 billion higher if that timing shift did not occur.
Revenue increased as the tax bases for the income tax and payroll tax increased compared to last year, outweighing the fact that the payroll tax cut was not in effect for part of FY 2011. Corporate revenue jumped by one-third mostly due to the expiration of the full equipment expensing at the end of 2011.
In short, the moderate shrinkage of the deficit for 2012 comes from general economic expansion, deliberate deficit reduction, the expiration of temporary spending and tax measures, and the timing shift that pushed payments for October into the previous year.