US January deficit drops sharply as receipts grow, tax refunds fall

The U.S. federal budget deficit fell sharply in January to $22 billion as receipts hit a record for that month, partly because tax refunds fell after the Internal Revenue Service (IRS) cleared a backlog of pandemic-delayed tax returns, the Treasury Department said on Monday.

The deficit last month was $17 billion, or 43 per cent, less than the $39 billion deficit in January 2023. Outlays for the month grew 3 per cent to $499 billion, while receipts jumped 7per cent to $477 billion.

This January's comparison with a year ago was also significantly helped by the $36 billion bailout of a Teamsters union pension fund in January 2023, as no similar large one-time outlays were recorded this year.

For the first four months of the fiscal year, the deficit rose $72 billion, or 16 per cent, to $532 billion as costs to service the national debt rose, as did outlays for Social Security, Medicare and military programs.

The Treasury said both receipts and outlays were records for the period, with receipts up $112 billion, or 8 per cent, to $1.585 trillion, and outlays up $184 billion, or 10 per cent, to $2.117 trillion.

Individual tax refunds, which are deducted from receipts, were $15 billion lower in January than during January 2023. The IRS last year adopted new scanning technology to enable it to process paper returns more quickly. Individual withheld receipts in January, benefiting from strong employment trends, were up $20 billion, or 7 per cent, from a year earlier.

But the Treasury's interest cost on the public debt grew $18 billion, or 35 per cent, in January compared to a year earlier due to a higher weighted average interest rate now at 3.15 per cent, as well as higher debt levels. For the fiscal year to date, debt interest costs were up $96 billion, or 37 per cent, to $357 billion, outpacing outlays for Medicare.

Year-to-date costs for Medicare, the healthcare program for seniors and the disabled, rose $23 billion, or 8 per cent, to $306 billion, due to higher payments for Medicare Advantage plans. The Social Security pension system recorded a year-to-date cost increase of $46 billion, or 10 per cent, to $487 billion as the result of cost-of-living increases of paid benefits and a higher number of recipients as members of the baby boomer generation retire.

The Treasury also reported higher costs for military programs due to expenditures for military personnel operations and maintenance. For the first four months of fiscal 2024, these were up $32 billion, or 13 per cent, to $283 billion.

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