Shrinking Federal Budget Deficit
The Congressional Budget Office (CBO) issued the first good news about the federal budget deficit since the 2008 recession and the huge stimulus program meant to pull the economy out of its dive. In another sign that the economy has turned upward, individual tax receipts were a large factor in the improvement. On the other hand, higher tax rates may have been the cause. Ironically, experts believe that these taxes could hurt the consumer later in the year, which would undermine improvements in the size of the deficit. According to the CBO’s monthly budget review:
The federal government ran a budget deficit of $489 billion in the first seven months of fiscal year 2013 (that is, from October 2012 through April 2013), according to CBO’s estimates. That amount is $231 billion less than the shortfall recorded during the same period last year, primarily because revenue collections have been much greater than they were at this point in 2012. In contrast, federal spending so far this year has been slightly lower than what it was last year at this time.
Individual income and social insurance (payroll) taxes together increased by $184 billion (or 16 percent).
Taxes withheld from workers’ paychecks rose by $99 billion (or 9 percent), mainly because of higher wages and salaries, the expiration of the payroll tax cut in January 2013, and increases (beginning in January) in tax rates on income above certain thresholds.
Nonwithheld receipts rose by $80 billion (or 30 percent), primarily because of higher payments made during the tax-filing season (February through April). Those payments—largely representing final payments for the 2012 tax year—increased by $66 billion (or 36 percent). Income tax refunds declined by $6 billion, further boosting receipts. The large increase in payments accompanying people’s income tax returns probably reflects the fact that higher-income taxpayers, anticipating changes in tax law, realized more income in 2012.
Those final payments submitted with 2012 tax returns (net of refunds) were substantially greater than the amounts CBO projected in its February 2013 report The Budget and Economic Outlook: Fiscal Years 2013 to 2023. The agency will issue updated budget projections for the 2013–2023 period next week.
Net corporate income taxes were higher by $24 billion (or 22 percent), probably reflecting growth in taxable profits in both calendar years 2012 and 2013.
China’s Trade Growth
China reported a strong trade surplus for April. The problem is that few analysts believed information from the People’s Republic. Experts have been skeptical about China’s economic data for years. One reason is that the central government wants both its population and the world to have faith in the power of the Chinese manufacturing machine. Another is that local governments issue data to make themselves look better in the eyes of the central government. The AP says about China’s trade growth in April:
China reported stronger April trade but analysts said export data were inflated and its shaky recovery might be weaker than it looks.
Exports rose 14.7 percent over a year earlier, up from March’s 10 percent growth, customs data showed Wednesday. Imports gained 16.8 percent, up from the previous month’s 14.1 percent.
That suggested the world’s second-largest economy might be improving after an unexpected decline in growth to 7.7 percent in the first three months of the year from the previous quarter’s 7.9 percent.
Analysts say, however, that Chinese export data are unreliable, possibly due to companies submitting inflated prices for their goods to evade capital controls and bring money into the country.
“We believe the strong trade growth is not indicative of a growth recovery,” said Zhiwei Zhang of Nomura in a report
Toyota Motor Corp. (NYSE: TM) issued financial data that showed that in the short term the auto manufacturer has experienced a recovery. Toyota’s fortunes mostly have gotten better since the Japanese earthquake shut many of its plants, and it went through a series of embarrassing recalls of millions of its vehicles. The announcement of fiscal year financial results said:
On a consolidated basis, net revenues totaled 22.0 trillion yen, an increase of 18.7 percent compared to the previous fiscal year. Operating income increased from 355.6 billion yen to 1.32 trillion yen, an increase of 965.2 billion yen, while income before income taxes was 1.40 trillion yen. Net income increased from 283.5 billion yen to 962.1 billion yen.
Major factors contributing to the increase in operating income include the positive effects from marketing activities generating 650.0 billion yen, cost reduction efforts saving 450.0 billion yen and currency fluctuations of 150.0 billion yen, which offset the negative effects from related expenses of 300.0 billion yen.
Consolidated vehicle sales totaled 8.871 million units, an increase of 1.519 million units compared to the previous fiscal year.