Ominous Sign: Fed Tax Revenue Set To Plunge Most Since Midst of Great Depression

Discussion in 'Economics' started by ByLoSellHi, Aug 3, 2009.

  1. AP ENTERPRISE: Federal tax revenues plummeting

    Associated Press
    – 2 hours ago

    The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.

    The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.

    Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

    The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.

    "Our tax system is already inadequate to support the promises our government has made," said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.

    "This just adds to the problem."

    While much of Washington is focused on how to pay for new programs such as overhauling health care — at a cost of $1 trillion over the next decade — existing programs are feeling the pinch, too.

    Social Security is in danger of running out of money earlier than the government projected just a few month ago. Highway, mass transit and airport projects are at risk because fuel and industry taxes are declining.

    The national debt already exceeds $11 trillion. And bills just completed by the House would boost domestic agencies' spending by 11 percent in 2010 and military spending by 4 percent.

    For this report, the AP analyzed annual tax receipts dating back to the inception of the federal income tax in 1913. Tax receipts for the 2009 budget year were available through June. They were compared to the same period last year. The budget year runs from October to September, meaning there will be three more months of receipts this year.

    Is there a way out of the financial mess?

    A key factor is the economy's health. The future of current programs — not to mention the new ones Obama is proposing — will depend largely on how fast the economy recovers from the recession, said William Gale, co-director of the Tax Policy Center.

    "The numbers for 2009 are striking, head-snapping. But what really matters is what happens next," said Gale, who previously taught economics at UCLA and was an adviser to President George H. W. Bush's Council of Economic Advisers.

    "If it's just one year, then it's a remarkable thing, but it's totally manageable. If the economy doesn't recover soon, it doesn't matter what your social, economic and political agenda is. There's not going to be any revenue to pay for it."

    A small part of the drop in tax receipts can be attributed to new tax credits for individuals and corporations enacted in February as part of the $787 billion economic stimulus package. The sheer magnitude of the tax decline, however, points to the deep recession that is reducing incomes, wiping out corporate profits and straining government programs.

    Social Security tax receipts are down less than a percentage point from last year, but in May the government had been projecting a slight increase. At the time, the government's best estimate was that Social Security would start to pay out more money than it receives in taxes in 2016, and that the fund would be depleted in 2037 unless changes are enacted.

    Some experts think the sour economy has made those numbers outdated.

    "You could easily move that number up three or four years, then you're talking about 2013, and that's not very far off," said Kent Smetters, associate professor of insurance and risk management at the University of Pennsylvania.

    The government's projections included best- and worst-case scenarios. Under the worst, Social Security would start to pay out more money than it received in taxes in 2013, and the fund would be depleted in 2029.

    The fund's trustees are still confident the solvency dates are within the range of the worst-case scenario, said Jason Fichtner, the Social Security Administration's acting deputy commissioner.

    "We're not outside our boundaries yet," Fichtner said. "As the recovery comes, we'll see how that plays out."

    The recession's toll on Social Security makes it even more urgent for Congress to address the fund's long-term solvency, said Sen. Herb Kohl, D-Wis., chairman of the Senate Aging Committee.

    "Over the past year, millions of older Americans have watched their retirement savings crumble, making the guaranteed income of Social Security more important than ever," Kohl said.

    President Barack Obama has said he wants to tackle Social Security next year, after he clears an already crowded agenda that includes overhauling health care, addressing climate change and imposing new regulations on financial companies.

    Medicare tax receipts are also down less than a percentage point for the year, pretty close to government projections. Medicare started paying out more money than it received last year.

    Meanwhile, the recession is taking a toll on fuel and industry excise taxes that pay for highway, mass transit and airport projects. Fuel taxes that support road construction and mass transit projects are on pace to fall for the second straight year. Receipts from taxes on jet fuel and airline tickets are also dropping, meaning Congress will have to borrow more money to fund airport projects and the Federal Aviation Administration.

    Last week, Congress voted to spend $7 billion to replenish the highway fund, which would otherwise run out of money in August. Congress spent $8 billion to replenish the fund last year.

    Rep. Richard Neal, D-Mass., chairman of the House subcommittee that oversees fuel taxes, is working on a package to make the fund more self-sufficient. The U.S. Chamber of Commerce, which doesn't back many tax increases, supports increasing the federal gasoline tax, currently 18.4 cents per gallon.

    Neal said he hasn't endorsed a specific plan. But, he added, "You can't keep going back to the general fund."

  2. Broken economy? Rapidly shrinking tax base? Hey, I got it...let's push for (1) Universal health care (2) Cap-n-Trade, AKA Tax-n-Kill (U.S. businesses, that is) and (3) Regulation mania. That's a sure formula to encourage fiscal responsibility and economic growth.

    Is he the dumbest President yet...or the most nefarious?
  3. No.

    I won't buy anything but gold bars, stamped as authentic, and I don't know where to find them.

    Also, I'm not so sure gold is going to be a safe hedge when the depression hits.

    Gold used to have many industrial applications, and, in fact, was necessary for some applications.

    This is no longer the case.

    I think working farms may be a better investment, so long as one can also provide their own livestock feed, etc.
  4. dewton


    wait wait... the government is having a hard time finding $1.8 trillion? didn't the fed recently give $23 trillion to big banks? why is it that big banks get $23 trillion and we the people can't get a measly $1.8 trillion?

    why are we talking about increasing taxes to raise money when big banks freely receive $23 trillion?
  5. You're not supposed to ask such questions.
  6. jprad


    Still haven't quite grasped the difference between actuals and projections, have you?
  7. achilles28


    Haven't seen you around much. I hope you keep posting. Definitely one of the better members on the site....

    True about actuals versus totals. Actuals are somewhere around 4-6 Trillion. If this recession goes double dip, that figure could easily hit 10 Trillion + a budget deficit projected at nearly 2 Trillion this year. Plus state and muni's that will all follow suit = Debt explosion.

    Obama's cap-and-trade, healthcare and jacked taxes should put a lid on this recovery. The drop in output, tax base + massive deficits paints a very bearish picture medium-term.

    Traders think inflating our way out of debt payments is a good thing. That will destroy a good portion of the Countrys wealth in the process. Very bullish. Think Russian Ruble, Argentina, or Mexican Peso.
  8. pupu


    Who cares about tax revenues when you can print all the $$$ you can.

    Once the cost of printing 1US$ will raise above the value of 1US$ then they may need to modify the system.
    Might happen in a year or two.
  9. achilles28


    Printing destroys wealth.

    If the FED debased a huge amount, the offsetting inflation would evaporate a huge % of savings, income and equity = lower GDP. 3rd World Countries do that to shirk debt payments. In the process, they kill their economy and destine their country to poverty.

    Is that what we want for America?
    #10     Aug 4, 2009