US Federal Budget: Deficit widens in FY 2017, more of the same ahead - Wells Fargo

Analysts from Wells Fargo, noted that the Federal government ran a budget deficit of $666 billion during FY 2017, an increase of 14% from the previous year. According to them, the deficit will rise. 

Key Quotes: 

“Data released from the U.S. Treasury showed the federal government incurring a small surplus of $8 billion in the month of September. The federal fiscal year runs from October 1 through September 30 of the following year, making the September surplus the final chapter in FY 2017. The federal government ran a $666 billion deficit in FY 2017, $80 billion (or 13.7 percent) more than the deficit in FY 2016.”

“For the second consecutive year, federal spending growth outpaced revenue growth. Revenue growth has been particularly slow, averaging just 1.0 percent over the past two fiscal years. The drivers of this slowdown have been broadly-based. Corporate income tax collections have been essentially flat for the past couple years. Federal Reserve earnings remitted to the Treasury have declined as the interest paid on excess reserves has moved higher in step with the fed funds rate.”

“The trend of narrowing budget deficits and decelerating net Treasury issuance that dominated the early part of this expansion bottomed in FY 2015. The past two years have each seen an increase in the deficit, and we expect more of the same ahead. Federal spending will continue to see steady growth as the aging of the population drives faster entitlement spending. Federal Reserve remittances continue to decline and policymakers weigh increasing the restrictive discretionary budget caps, particularly for defense spending. On the revenue side, the outlook has brightened somewhat, as an improvement in corporate profit growth should drive faster receipts collections. It also seems plausible that the build-up in delayed capital gains realizations could begin to unwind in 2018. The prospect of deficit-financed tax cuts, however, may end up offsetting these tax collection catalysts. Our forecast is for a federal budget deficit of $750 billion in FY 2018.”