Federal Surplus: Did the Treasury Just See Peak Revenue?
Tax revenues have been on the rise for about 18 months. As speculated previously, if this windfall was temporary, it would have shown up with a deficit in April due to a higher than normal tax returns surge. April is historically a positive month for the Treasury, but a surge in tax returns leading to a deficit would have suggested the past year was potentially a fluke.
This was not the case. The Treasury saw its greatest surplus ever of $308B. This blew past the previous record in April 2018 of $214B by almost 50% Similar to inflation, there has been a perfect storm of events that could be leading to the massive revenue surge.
Unlike inflation though, it’s more likely we are now experiencing peak revenue due to the stock market crash and pending recession. Peak inflation is probably still ahead.
Figure: 1 Monthly Federal Budget
April is the strongest month for the Treasury during the calendar year. The top 10 biggest surpluses of all time all took place in April. That being said, the most recent April was still a massive standout. The chart below shows every April going back to 1981.
The current month’s revenue of $864B was more than 60% higher the previous April record set in 2019 of $536B.
Figure: 2 Historical Deficit/Surplus for April
The next chart shows the 10-year historical average of each month’s Deficit/Surplus and compares this number to the most recent month (e.g., April 2022 compared to the previous 10-year average). The year from April 2020-March 2021 is removed because that was during the brunt of the Covid crisis and stimulus packages, skewing the averages.
Ten of the 12 calendar months are worse than their historical averages, some by a wide margin. Only January and April have exceeded their averages.
The magnitude of this month’s surplus can be clearly seen. The 10-year average in April is +$97B compared to this April’s $308B.
Figure: 3 Current vs Historical
The Sankey diagram below also shows just how big the surplus is compared to expenditures. Individual taxes covered the entire Federal Budget in April ($593B in tax rev vs $556B in spending)!
Figure: 4 Monthly Federal Budget Sankey
Now, before the Treasury and politicians start popping champagne, it’s important to note the current state of the budget. Despite the record increases in revenue, the TTM still shows a deficit that exceeds $1.2T!
Figure: 5 TTM Federal Budget Sankey
The Treasury does not provide detail on revenue beyond the high-level categories. Individual Tax Revenues have been the biggest drivers, and April was no exception as shown in Figure 6.
What is driving this surge in tax revenues? It could be spending effects from the stimulus, higher wages from inflation, or income from realized gains (the everything bubble was still strong in December). The question now becomes, will it last?
The stock market has tanked, the stimulus is over, but inflation looks to be sticking around. Time will tell, but we may be experiencing peak tax revenues for the foreseeable future.
Figure: 6 Monthly Receipts
On the expense side, the Federal government has found a new normal around $500B a month. This will likely go higher as interest on the debt starts to move upwards from rising interest rates. The last two months have seen debt interest exceed $43B. Last March and April saw interest spending closer to $32B.
Figure: 7 Monthly Outlays
The table below goes deeper into the numbers of each category. The key takeaways from the charts and table:
- Debt Interest is up 29% on a TTM basis
- Income Security has dropped 42% as stimulus ended a year ago
- TTM Individual Taxes are up 54% compared to TTM ending April 2021 and 82% compared to April 2020
- Corporate Taxes are up 100% from TTM ending April 2020
- The Total Deficit has shrunk 66% since stimulus peaked last April
- TTM spending is still up 17% compared to TTM April 2020 which did include the first stimulus package
Figure: 8 US Budget Detail
Zooming out and looking over the history of the budget back to 1980 shows a complete picture and just how extreme the last two years have been. The chart below shows the data on a TTM basis to smooth out the lines.
As can be seen, Expenses have fallen recently and Tax Revenues have surged. The most recent month can be seen clearly by the massive spike on the far right.
Figure: 9 Trailing 12 Months (TTM)
The next two charts zoom in on the recent periods to show the change when compared to pre-Covid. The current 12-month revenue surge is more than $1T bigger than the previous TTM (31.5%).
Figure: 10 Annual Federal Receipts
Spending is also down from the peak last year but is still above $6T.
Figure: 11 Annual Federal Expenses
Due to the changing dynamics, TTM Deficit compared to GDP has returned to pre-Covid levels of 5%.
Note: GDP Axis is set to log scale
Figure: 12 TTM vs GDP
Finally, to compare the calendar year with previous calendar years, the plot below shows the YTD figures through April. The treasury is running its first calendar year surplus through April since 2001.
Figure: 13 Year to Date
What it means for Gold and Silver
Again, will this last? Can politicians get comfortable with a new normal of surging tax revenues? With stimulus gone and the economy tanking, it seems unlikely the surge will continue. If a recession sets in, an increase in spending is sure to accompany a fall in tax revenues.
What if the current surge in revenue gives politicians the confidence to propose bigger spending packages during the next recession? This could be the perfect storm that blows the deficit back to or even beyond Covid levels. Unfortunately, who will buy all that debt with the Fed currently on the sidelines?
This leads to the final point. Surging interest rates could prove deadly for the Federal government. Simple math shows that the Treasury could be spending another $100B on interest by this time next year. Can tax revenues keep up? Unlikely.
It’s most likely this surge in tax revenues is transitory. Unless inflation gets completely out of control (tax revenues could be anything), it’s likely that next April will look more like April 2020 (Deficit of $738B).
Data Source: Monthly Treasury Statement
Data Updated: Monthly on eighth business day
Last Updated: Period ending Apr 2022