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Treasury Prints Second Largest February Budget Deficit Ever

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The Federal Government ran a deficit of -$262B in February. Ignoring the Student Loan forgiveness allocation in September last year, this is the largest monthly budget deficit since July 2021. And it’s the second-largest February deficit ever.

Figure: 1 Monthly Federal Budget

The chart below shows the month of February historically. This February sits only behind February 2021 ($311B) when Covid spending was still near full throttle.

Figure: 2 Historical Deficit/Surplus for February

February is typically the biggest deficit month of the year, averaging a deficit of $208B per year for the decade before Covid. Still, this year came in 26% above that figure.

Figure: 3 Current vs Historical

The Sankey diagram below shows the distribution of spending and revenue. The Deficit represented 50% of total spending while Social Security revenue was the second biggest item at $120B or 22.8%. This shows Social Security is still in a surplus as Social Security spending came in $6B less at $114B.

Figure: 4 Monthly Federal Budget Sankey

Looking at the TTM, the deficit represented 25% of the total spending with Individual Income taxes covering 40% of the total budget. This means, if the government wanted to plug the Deficit hole (as Biden currently claims), then Individual Income taxes would need to rise 64%!

On a TTM basis, Social Security also remains in a surplus thanks to a record increase in Social Security taxes in 2023.

Figure: 5 TTM Federal Budget Sankey

February saw a fairly large reduction in tax revenues, driven primarily by Corporate Taxes (which are inconsistent), but also Individual Income Taxes.

Figure: 6 Monthly Receipts

Total Expenses were up slightly MoM, but still around average for the last year. The September student loan allocation can be seen clearly in the chart below. If the Supreme Court rules against the forgiveness plan, then that allocation could be reversed.

Figure: 7 Monthly Outlays

The real issue with the debt continues to be interest expense. In February, total interest expense reached $541B on a TTM basis. This is up $8B since January. A deeper dive into the debt and interest expense can be found in the debt analysis.

Figure: 8 TTM Interest Expense

The table below goes deeper into the numbers of each category. The key takeaways from the charts and table:


    • TTM Spending on Social Security increased 9.3% since last February
    • Income Security was down YoY and on a TTM basis as most Covid relief has faded
    • Net Interest is up 41.6% on a TTM basis!


    • TTM receipts on Social Security increased 14% since last February – this is a massive burden on the middle class!
    • Individual Income taxes are also up, increasing 9.6% on a TTM basis – another big burden on American taxpayers
    • Corporate Taxes are up 92% since the TTM period ending in February 2021


    • Total Outlays in February rose 3.6% YoY while Revenues fell by 9.6%
    • The change is flipped on a TTM basis, leading to a net smaller deficit of $1.6T vs $2.2T

While the TTM deficit did shrink since last February, it should be noted that $1.6T is a massive and unsustainable budget deficit. Unfortunately, there is nothing material in Biden’s plan that will lead to any reduction in the deficit going forward.

Figure: 9 US Budget Detail

Historical Perspective

Zooming out and looking over the history of the budget back to 1980 shows a complete picture. It shows how a new level of spending has been reached that is far above pre-Covid levels. More importantly, in recent months, you can see that spending has turned back up while revenues have flattened out.

This is an alarming trend, especially because times are technically still “good” according to most pundits. What happens in a major recession or full-blown banking crisis? The media is arguing that SVB is probably contained, but they said the same thing in 2008! A recession or financial crisis will explode deficits to well north of $2T in short order.

Figure: 10 Trailing 12 Months (TTM)

The next two charts zoom in on the recent periods to show the change when compared to pre-Covid.

As shown below, total Receipts have surged higher in the last two years driven by Social Security, Corporate Taxes, and Individual Taxes. In two years, total revenue has climbed by $1.33T.

Figure: 11 Annual Federal Receipts

Spending has also seen a massive surge, blasting well past $6T per year for the last three years. The fact that spending is now at $6.45T despite no stimulus package beyond student loan forgiveness should be very alarming.

Figure: 12 Annual Federal Expenses

As highlighted above, spending on Social Security is still fully covered by Social Security revenues. The latest TTM period saw one of the largest surpluses in years. This comes at a cost. Income subject to Social Security taxes has reached $160k, up 9% YoY and up 50% since 2010. How many Americans got 9% raises this year or have seen incomes increase 50% in 13 years? This means Social Security is creating a pay cut for most American taxpayers.

Figure: 13 Social Security

Despite massive expenditures driving huge deficits, the Deficit is down YoY as mentioned above. This has brought the TTM Deficit compared to GDP down to pre-Covid levels. It has moved back up in recent months and is now at 6.2% of GDP, up from 3.9% as recently as August.

Note: GDP Axis is set to log scale

Figure: 14 TTM vs GDP

Wrapping Up

The TTM deficit of $1.6T is very alarming. As the yield curve anticipates another recession in the near future and rumors circulate about another financial crisis, bondholders should be careful. The low water mark for this move appears to be last July when the deficit came in at $961B on a TTM basis. The TTM deficit has almost doubled since then! If a recession causes tax revenues to dry up just as new spending is enacted, the government will find itself deep in a hole.

The warning signs have been flashing for a long time. It may be easy to ignore them as nothing has happened yet. But when things unravel, it can happen very quickly. Just ask SVB customers who thought their assets were safe in a premier bank just last week. 7 days later, the bank closed! This should be a major warning for all to get assets out of the banking system. Owning physical gold and silver is the ultimate insurance policy. It eliminates any counterparty risk and is wealth that does not get destroyed by inflation.

Data Source: Monthly Treasury Statement

Data Updated: Monthly on eighth business day

Last Updated: Period ending Feb 2023

US Debt interactive charts and graphs can always be found on the Exploring Finance dashboard:

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