A strong economy coupled with lower spending after the pandemic era stimulus programs has led to record tax collections and helped the U.S. Federal government reduce its budget deficit by $1.57 trillion this fiscal year.
The recovery of the budget deficit
During the seven months from October 2021 to April 2022, the budget deficit shrunk to $360 billion, as data released by the Treasury Department Wednesday.
As per Bloomberg News, tax receipts in the fiscal year have been $2.99 trillion, up from $2.14 trillion for the same period a year ago. According to the treasury officials, receipts for only April were $864 billion, the highest for any month ever, resulting from a boost in wages and strong employment growth.
In this fiscal year leading up to April, the spending came down to $3.35 trillion from $4.08 trillion a year back, helped in some ways by the rollback of benefits to businesses and households given during the pandemic.
The U.S. Treasury Department has paid $350 billion in interest payments since October 2021, the start of the fiscal year towards federal debt. According to treasuring officials, this was $76 billion more than the previous period, which saw an increase in additional costs mainly because of securities linked to inflation.
The weighted average yield was 1.66% on debt securities at the end of April compared to 1.65% a year ago.
The treasury department also benefited from revenue transfers made by the Federal Reserve. So far, $71 billion has been transferred compared to $49 billion for the same period in the previous year. These earnings are primarily from the security holdings by Federal Reserve.
However, the treasury officials have pointed out that net transfers from the Federal to the Treasury are expected to come down as interest rates get hiked by policymakers in this fiscal. The Federal Reserve, as a result, will have to pay more interest on the bank Reserves fund parked with the central bank. The receipts from the shrinking bond portfolio of the Federal Reserve are also expected to come down.
