US: Budget deficit to be higher FY 2017 than previously estimated  - Wells Fargo

In response to slower-than-expected individual and corporate tax collections, analysts from Wells Fargo increased their budget deficit forecast for Fiscal Year 2017 and reduced the estimate for FY 2018. 

Key Quotes: 

“In response to continued lower-than-expected tax collections, we have increased our deficit estimate for the FY 2017 budget deficit to $700 billion and reduced our estimate for FY 2018 to $875 billion. The key factor behind our revision has been the consistent under performance of both individual and corporate tax collections.”

“This has the net effect of suppressing revenue collections this year and boosting revenues next fiscal year once individuals realize capital gains. We also expect tax cuts to take effect beginning in January 2018. Furthermore, we do not expect all of the tax cuts that are enacted to be deficit neutral. Thus our forecast for federal deficits and net Treasury issuance are larger than the Congressional Budget Office’s (CBO) estimate.”

“In light of our new budget deficit estimates and the latest information from the Treasury’s Quarterly Refunding Statement, we now expect net Treasury issuance to total $685 billion for calendar year 2017 and $818 billion for calendar year 2018.”

“Looking ahead to the fourth quarter, we expect a large jump in net Treasury issuance on the other side of the debt ceiling increase. The Treasury is expected to replenish its cash
balance in addition to financing a larger budget deficit in first quarter of the 2018 fiscal year (Q4 of the 2017 calendar year). We expect net Treasury issuance in Q4 of this calendar year to rise by $501 billion which, combined with our estimated budget deficit, would result in a December ending cash balance of $224 billion.”