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Early tally on federal spending

| May 8, 2020

This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors.

The Treasury expects to borrow an eye-popping $3 trillion in the current calendar quarter to fund spending enacted to cushion the economic blow from coronavirus. The Treasury’s daily financial statements show a significant portion of the money allocated in the $2.2 trillion CARES act was already spent in April.

CARES Act

 The CARES act included an unprecedented response to the COVID crisis.   An estimate by the Congressional Budget Office and the Congressional Joint Committee on Taxation pegged the impact on the deficit to be $1.8 trillion, including a whopping $1.6 trillion in fiscal year 2020 alone.  The largest programs are the Payroll Protection Program, special unemployment benefits, household rebate checks and tax breaks for businesses primarily from a delay in payroll tax obligations and more generous allowances for operating losses.  The CARES act also includes nearly a half trillion dollars to support Fed lending facilities, but these are estimated to have no substantial impact on the budget, as the Fed is not expected to lose money on the lending programs; Treasury will have to borrow to fund the equity support that it is offering to the Fed to backstop the facilities.  Another key step taken by Treasury unilaterally that will have little impact on the annual deficit but heavily affected the April budget numbers is Treasury’s move to delay the April 15 tax date by three months to July 15.

April Treasury statement figures

The Treasury reports its monthly budget figures for April on May 12, but the daily Treasury statements offer a decent read on spending of COVID-related funds. Treasury spent $12.4 billion as part of its airline support program, $139.6 billion for coronavirus relief mostly as payments to hospitals and municipalities, and the Small Business Administration spent $13.6 billion in April, undoubtedly linked to the PPP.  In addition, the bulk of the “recovery rebate” checks went out electronically in April, totaling about $150 billion.

Meanwhile, there are other existing spending categories that are surging sharply due to the virus response.  Unemployment benefits from April 2019 to April 2020 surged from $2.5 billion to $48.4 billion.  Medicare outlays year-over-year shot up by nearly $100 billion.  Finally, the HHS budget increased year-over-year by nearly $40 billion, likely reflecting purchase of personal protective equipment and other medical supplies.

Finally, thanks to the 3-month delay in the tax date, nonwithheld individual and corporate income tax receipts likely sank in April by a combined $300 billion or so.

In all, the federal government provided total stimulus of $800 billion or so just in the month of April.  The incremental amounts are likely to recede in May and the months ahead, but the largesse will remain substantial for the foreseeable future, especially if Congress eventually enacts a second CARES-style package.

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