Federal revenues rose nearly 3 percent from fiscal year 2009 to FY2010. But virtually the whole increase came from higher corporate income taxes and a more than doubling of Federal Reserve earnings. Preliminary data in the Congressional Budget Office’s October Monthly Budget Review reveal that revenue climbed $57 billion to $2.16 trillion in the fiscal year that ended last month (see graph). Combined with a $67 billion fall in outlays, that revenue gain cut the federal deficit by $125 billion to a still astronomical $1.3 trillion, or 8.9 percent of GDP. Bad as that is, it’s well below 2009’s deficit of 10 percent of GDP.

Year-over-year revenue changes were highly uneven, however. Corporate income taxes jumped about 40 percent to $192 billion—up $54 billion from 2009—largely because profits rose but also because temporary provisions allowing firms to depreciate assets more rapidly expired. (Congress extended accelerated depreciation retroactively in September, but any tax savings won’t come until FY2011.) Federal Reserve receipts jumped more than 120 percent ($42 billion) on the Fed’s greatly expanded investment portfolio, mostly acquired to boost the economy and prop up the ailing housing market.

But both individual income and social insurance taxes fell in FY2010-- fallout from continuing high unemployment. Income tax receipts were down 1.6 percent ($14 billion) and the taxes supporting Social Security and Medicare dropped more than 3 percent ($28 billion). Had these revenue sources held constant, the deficit would have shrunk another 0.3 percent of GDP.

Revenues are still far shy of their 2007 peak, down more than $400 billion. But the past year’s increase is encouraging. Now all we need is a return to full employment, even stronger corporate profits, and a healthy housing market. It could be a long wait.