Tax Revenue Slump: No Doubt in These Numbers

Although there are many measures of economic activity, the amount of money being remitted to the government through payroll and other taxes not only tells us how the population at large is doing, but it also gives us insights about our nation's fiscal health. Unlike other official statistics, this relatively timely series appears to be free of at least some of the adjustments, plug factors, and distortions that can spur doubts about what is really going on. With that in mind, the following USA Today report, "IRS Tax Revenue Falls Along with Taxpayers' Income," would seem to put paid to the notion that a rebound is at hand.

Federal tax revenue plunged $138 billion, or 34%, in April vs. a year ago — the biggest April drop since 1981, a study released Tuesday by the American Institute for Economic Research says.

When the economy slumps, so does tax revenue, and this recession has been no different, says Kerry Lynch, senior fellow at the AIER and author of the study. "It illustrates how severe the recession has been."

For example, 6 million people lost jobs in the 12 months ended in April — and that means far fewer dollars from income taxes. Income tax revenue dropped 44% from a year ago.

"These are staggering numbers," Lynch says.

Big revenue losses mean that the U.S. budget deficit may be larger than predicted this year and in future years.

"It's one of the drivers of the ongoing expansion of the federal budget deficit," says John Lonski, chief economist for Moody's Investors Service. The Congressional Budget Office projects a $1.7 trillion budget deficit for fiscal year 2009.

The other deficit driver is government spending, which, the AIER's report says, is the main culprit for the federal budget deficit.

The White House thinks that tax revenue will increase in 2011, thanks in part to the stimulus package, says the report from AIER, an independent economic research institute. But it warns, "Even if that does happen, the administration also projects that government spending will be so much higher each year that large deficits will continue, and the national debt held by the public will double over the next 10 years."

The government may have a hard time trimming spending to reduce the deficit when the recession ends. The 77 million Baby Boomers— those born in 1946 through 1964 — will start tapping their federal retirement benefits soon, which means increased government outlays for Social Security and Medicare.

"It will be doubly difficult for federal government to reduce expenditures and narrow the deficit as rapidly as they did following previous recessions," Lonski says. At the end of the last major recession, in 1981, Boomers were in their 30s. Their incomes were expanding, as was their appetite for goods and services.

The Boomers now are in their 50s and 60s and unlikely to keep increasing incomes for long, which means that revenue from income taxes could flatten in the next few years. Also, Lonski says, they are more likely to save for retirement than spend — and consumer spending is a big driver of the economy.

"The American consumer led us out of previous recessions with some semblance of gusto," Lonski says. "They're too old to do it now."

Comments

[Fighting Yoda:]

Revenue downfall is no surprise at all.
But well said: "The American consumer led us out of previous recessions with some semblance of gusto, They're too old to do it now."

May 29 02:46 AM

[Dave Wrixon:]

These numbers are really the only ones you can trust at the moment.

And of course they don't tie in with any where there is discretionary adjustment.

As they say, "You can run, but you cannot hide".

May 29 03:08 AM

[punk_ash:]

at a time we need smaller government, we are getting a big one.

May 29 04:59 AM

[User 353732:]

The response of the Government will be to engage in further class warfare( those "rich"---i.e middle class---- people are responsible for declining tax revenues because they are evading taxes, not paying their fair share and hiding in tax shelters), invent new categories of indirect taxes while increasing existing indirect taxes, reduce or eliminate the few middle class tax deductions still left, further punish entrpreneurship and private innovation and of course compell high inflation so people( especially the self employed and the small business owners) can be pushed into higher tax rates.

May 29 06:30 AM

[CautiousInv...:]

Unfortunately, this is rather typical in a recession and one should expect it to be worse in a great recession. Goldman just upped their estimated of our borrowing needs through this FY.

I think it is fair to say we have structural deficits and, when combined with the needs of other advances economies, global borrowing needs simply exceed available capital pools.

Debt will be monetized.

May 29 06:32 AM

[tunaman4u2:]

Yup to Cautiousboy... revenue slump doesn't mean anything. It SHOULD but it doesn't

On May 29 06:32 AM CautiousInvestor wrote:
>
> Debt will be monetized.

May 29 08:14 AM

[TeresaE:]

Yet all the projections continue to be based on 2006 tax revenues.

Those days are gone and ain't coming back anytime soon.

Spend, spend, spend government so that you can tax our children into poverty and dependence.

So, what is it going to take for Americans to quit voting the same corrupt bozos back into office?

Apparently the removal of our childrens' American dream isn't enough.

"Sorry kids, but you have to work for pennies while paying pounds in taxes so that ma & I can retire and live the good life".

The true paradox is that the same generation that raised the most materialistic, self-centered generation ever, is making decisions that will plunge their kids into slavery. Seems counter intuitive doesn't it?

May 29 08:50 AM

[Steve in Gr...:]

Taxing the rich never works for very long; it just reduces the number of rich people. And there are limits to currency debasement, as our Chinese creditors are telling us now.

The project of the left is to expand government, and to do this they must continue to increase tax revenues. The current administration has unveiled their plan to do this -- a national VAT, in order to tax everybody.

May 29 08:58 AM

[manya05:]

TeresaE: "So, what is it going to take for Americans to quit voting the same corrupt bozos back into office?"

Elimination of the two-party system. If you think about it, we have an oligopoly with mild collusion, meaning that our political system is almost a perfect monopoly. Unless voters are given real options, they will keep voting the same bozos.

May 29 09:12 AM

[Dan / The C...:]

I'm reminded of a principle I learned in Sunday School. “The rich rule over the poor, and the borrower is servant to the lender.” IF Americans were the ones doing the lending to the government, we would be servents to ourselves, but if my memory serves me right, that isn't the case. Of course it appears that we are borrowing with the intent of not repaying, but rather printing our way out. Which reminds me of another principle I learned in Sunday School. "The wicked borrow and do not repay".

May 29 09:13 AM

[Allamad:]

We need to massively increase immigration, but only for those who are highly skilled or entreprenuers with significant assets to invest. Canada has been doing this for years with great success. Only this will bring in the future tax dollars we need. The U.S. is still a desirable place to live for many of the best and brightest foreigners. Our current immigration policy is a disaster and is inspired strictly by politics. Bill Gates recently wanted to bring in nearly 1000 top flight IT people and engineers from India and was turned down by the State Department.

May 29 09:30 AM

[The Geoffster:]

One possibility comes to mind. The creation of a third party from the ranks of centrist Dems and Reps currently in office. They can continue to caucus with their respective parties while building third party momentum through grass roots support. Then, the left and the right can be marginalised. If the oligarchy cannot be stopped through the democratic process, I fear social unrest leading to de facto dictatorship. Considering the politics of the current administration, I suspect we would have a right wing coup.


On May 29 09:12 AM manya05 wrote:

> TeresaE: "So, what is it going to take for Americans to quit voting
> the same corrupt bozos back into office?"
>
> Elimination of the two-party system. If you think about it, we have
> an oligopoly with mild collusion, meaning that our political system
> is almost a perfect monopoly. Unless voters are given real options,
> they will keep voting the same bozos.

May 29 09:33 AM

[I am not a ...:]

Oh well, Our government( labor,Australia ) has a fiscal policy modeled by the same people who have modeled the US policy.
No real difference in policy at all . But one thing any political scientist will tell anyone who cares to listen, Policy makers are Wrong in their predictions as to the outcome of their devious little ideas 99% of the time .
Unfortunately for our grandchildren ,these shadowy Policy makers,not the elected reps, are running the show right now.
Look at Australia,9 million taxpayers and 380Billion in debt. Debt that has been dumped on us in just 7 months of the present governments policy decisions. SEVEN MONTHS! . what will the next few months bring us?......

May 29 10:04 AM

[Swiftcreek1:]

.....and to think that during the campaign Obama chided McCain for "wanting to take a hatchet to the budget when what was needed was a scalpel".....What were are seeing now are just ever clearer indications that what was really needed was a chainsaw. The government should have stayed out of it completely and let the markets correct themselves. We hear far to much doom and gloom speculation as to what would have happened had they done precisely that. Current policy has only extended housing market misery it hasn't fixed the problem. Same as in many other troubled sectors hit hard by the recession. What we need to keep in mind is that the housing bubble that started this mess is largely the FAULT of the Government, and their solutions seem to mesh quite nicely with the perception that Obama's domestic policy objectives are massive Government expansion.....The proposed VAT is another example.....Keep in mind that the EFFECT of a VAT would be a further reduction of manufacturing in the U.S......Keep in Mind that after NAFTA The Clinton adminstration changed the description of a "manufacturing" job to include the guy who puts together your burger at McDonald's. Obviously this was done to mask the manufacturing job losses as companies shifted those jobs north, south, and overseas.

May 29 10:38 AM

[MarkitWacha:]

Taxation is a friction. Obama wants to meddle with our system because he thinks he knows everything since he's a lawyer.

I got news for you, friend. I can vote with my DOLLARS. I can short the govt. bond market till the whole congress is fretting about their jobs. And I can do this EXPONENTIALLY to SPEED up the process of SOCIAL backlash against the BIG GOVT. proponents and leftists.

If anyone wants to join me, you can do it like this:

Buy TBT, if you're a small investor. If you have a margin account, buy call options on TBT.

Once you've made your first $50,000 or so, it becomes more efficient to use the futures market, and to use the interest rate futures and options. The CME website will guide you.

After you've made a million dollars or so, tell all your friends and relatives to join you in betting against the government.

By the time the interest rates get to 15% for a 30-yr. mortgage, these fools will have NO CHANCE of another term in office.

May 29 12:29 PM

[Tony Petroski:]

"The American consumer led us out of previous recessions with some semblance of gusto," Lonski says. "They're too old to do it now."

No they're not.

Even by your own figures, "baby boomers" include some born in 1964 and aren't retiring just yet.

Others, older, are saying "what can I make fresh for you today?"

I was in college in 1981 and facing stagflation, the threats from Iran and North Korea, ...oh, just like today.

We'll get through this.

May 29 12:58 PM

[conceptwizard:]

This simple fact has surfaced for me. "They simply Don't care". The Politicians know that it is to late to turn it around. The debt will never be paid back. The debt has never been paid back. This is the only thing that makes sense in such irresponsible behavior. It explains everything. They know the dollar has to go bust..they know we can't spend our way out...they know they are not in control....they know the consumer debt will hold us ransom.

May 29 01:33 PM

[tunaman4u2:]

Can & will other countries counter with devaluing their currency as well?


On May 29 01:33 PM conceptwizard wrote:

> This simple fact has surfaced for me. "They simply Don't care". The
> Politicians know that it is to late to turn it around. The debt will
> never be paid back. The debt has never been paid back. This is the
> only thing that makes sense in such irresponsible behavior. It explains
> everything. They know the dollar has to go bust..they know we can't
> spend our way out...they know they are not in control....they know
> the consumer debt will hold us ransom.

May 29 02:57 PM

[realold:]

I am a pre-boomer at age 65. I agree with you but would add that the current uncertainties and much feared results of an Obama administration cause me to spend far less. I have no idea how much inflation, low interest rates (CDs are a lot of my income), a sure increase in income taxes (the downside of IRAs for retirement) and all the other factors that make up my income/savings will change. Spending on anything doesn't sound wise right now does it? It is not just age, it is the economy, stupid. Nothing personal. I am just pointing out that uncertainity causes paralysis. We need real leadership and are at least four years away from getting it.


On May 29 02:46 AM Fighting Yoda wrote:

> Revenue downfall is no surprise at all.
> But well said: "The American consumer led us out of previous recessions
> with some semblance of gusto, They're too old to do it now."

May 29 10:23 PM

[realold:]

Hope it works!


On May 29 12:29 PM MarkitWacha wrote:

> Taxation is a friction. Obama wants to meddle with our system because
> he thinks he knows everything since he's a lawyer.
>
> I got news for you, friend. I can vote with my DOLLARS. I can short
> the govt. bond market till the whole congress is fretting about their
> jobs. And I can do this EXPONENTIALLY to SPEED up the process of
> SOCIAL backlash against the BIG GOVT. proponents and leftists.<br/>
>
> If anyone wants to join me, you can do it like this:
>
> Buy TBT, if you're a small investor. If you have a margin account,
> buy call options on TBT.
>
> Once you've made your first $50,000 or so, it becomes more efficient
> to use the futures market, and to use the interest rate futures and
> options. The CME website will guide you.
>
> After you've made a million dollars or so, tell all your friends
> and relatives to join you in betting against the government.
>
> By the time the interest rates get to 15% for a 30-yr. mortgage,
> these fools will have NO CHANCE of another term in office.

May 29 10:43 PM

[realold:]

I love your country and your people. My family has spent some quality time there. Although the lack of people is the best part of the place, maybe you could use a few more taxpayers. We are available...... How about returning to your immigration policies of the 1960's, with restrictions now, as then, maybe just more economic oriented?


On May 29 10:04 AM I am not a number.. wrote:

> Oh well, Our government( labor,Australia ) has a fiscal policy modeled
> by the same people who have modeled the US policy.
> No real difference in policy at all . But one thing any political
> scientist will tell anyone who cares to listen, Policy makers are
> Wrong in their predictions as to the outcome of their devious little
> ideas 99% of the time .
> Unfortunately for our grandchildren ,these shadowy Policy makers,not
> the elected reps, are running the show right now.
> Look at Australia,9 million taxpayers and 380Billion in debt. Debt
> that has been dumped on us in just 7 months of the present governments
> policy decisions. SEVEN MONTHS! . what will the next few months bring
> us?......

May 29 10:48 PM

[alaskaeagle:]

I am in the same age group. I am saving and buying gold. I do not need anything so I do not buy. My house is paid for and my credit cards are paid off every month. Obama scares me to no end of the world. We are speaking of trillions of dollars like I speak of one thousand dollars in my world. The problem is that the trillions will affect me if I live that long.


On May 29 10:23 PM realold wrote:

> I am a pre-boomer at age 65. I agree with you but would add that
> the current uncertainties and much feared results of an Obama administration
> cause me to spend far less. I have no idea how much inflation, low
> interest rates (CDs are a lot of my income), a sure increase in income
> taxes (the downside of IRAs for retirement) and all the other factors
> that make up my income/savings will change. Spending on anything
> doesn't sound wise right now does it? It is not just age, it is
> the economy, stupid. Nothing personal. I am just pointing out that
> uncertainity causes paralysis. We need real leadership and are at
> least four years away from getting it.

May 30 12:04 AM