By Terence P. Jeffrey
During the month, according to the Treasury, the federal government grossed $194 billion in tax revenue and paid out $65.898 billion in tax refunds (including $62.011 to individuals and $3.887 to businesses) thus netting $128.179 billion in tax revenue for March. At the same time, the Treasury paid out a total of $1.1187 trillion. When the $65.898 billion in tax refunds is deducted from that, the Treasury paid a net of $1.0528 trillion in federal expenses for March. That $1.0528 trillion in spending for March equaled 8.2 times the $128.179 in net federal tax revenue for the month.
The lion’s share of this federal spending went to redeem Treasury securities that had matured during the month—most of which were short-term Treasury bills that have terms of one year or less. In fact, during March the Treasury redeemed $705.3 billion in Treasury securities of which $623.9 billion were short-term bills with a term of one year or less.
After the disbursements made to pay off the $705.3 billion in loans that came due in March, three of the other top four federal spending items for the month were entitlements programs. The other top item was payments to defense contractors. The Treasury paid $49.8 billion in Social Security benefits in March, $47.4 billion in Medicare benefits, and $22.575 billion in Medicaid benefits. It also paid $37.9 billion to defense contractors.
To help pay off its $1.0528 trillion in monthly bills on only $128.179 in monthly tax revenue, the Treasury turned primarily to new borrowing. During the month, according to the Treasury statement, the government sold $786.5 billion in new securities. It also drew down its cash balance from $190.6 billion at the beginning of the month to $118.1 billion at the end of the month. It also reaped $18 billion from the sale of assets in the Troubled Asset Relief Program.
The federal government’s cash-flow situation was summed up pungently in Senate Budget Committee testimony by Erskine Bowles, who served as chief of staff to President Bill Clinton and is now the co-chair of President Barack Obama’s National Commission on Fiscal Responsibility. “I'm really concerned,” Bowles told the committee last month. “I think we face the most predictable economic crisis in history. A lot of us sitting in this room didn't see this last crisis as it came upon us. But this one is really easy to see. The fiscal path we are on today is simply not sustainable.”
“This debt and these deficits that we are incurring on an annual basis are like a cancer and they are truly going to destroy this country from within unless we have the common sense to do something about it,” said Bowles. “I used to say that I got into this thing for my grandchildren,” Bowles said. “I have eight grandchildren under five years old. I'll have one more in a week. And my life is wonderful and it is wild. But this problem is going to happen long before my grandchildren grow up.”
“This problem is going to happen, like the former chairman of the Fed said, or the Moody's said, this is a problem we're going to have to face up,” he said. “It may be two years, you know, maybe a little less, maybe a little more. But if our bankers over there in Asia begin to believe that we're not going to be solid on our debt, that we're not going to be able to meet our obligations, just stop and think for a minute what happens if they just stop buying our debt. What happens to interest rates?” asked Bowles. “And what happens to the U.S. economy? The markets will absolutely devastate us if we don't step up to this problem. The problem is real, the solutions are painful, and we have to act.”