Wednesday, August 5, 2009

Federal Tax Revenue Plummeting

We mentioned earlier today how government reports must be taken with many grains of salt. Now there are some figures which are so simple that they cannot be "adjusted" to show "prosperity". Federal tax receipts is pretty straightforward. X amount of money comes in, you report it. End of story. So we can actually look at this data with less of a jaded eye.

I had predicted future state budgets would be in a free fall in 2007 for exactly the same reasons we are seeing this problem at the federal level - a country reliant on fake asset appreciation based on Federal Reserve easy money policies had based its spending on said mirage. When mirage ends, you still have the bills to pay. But thankfully at the federal level we can just "charge it to the future" [May 29, 2009: In 1 year, US Taxpayer on the Hook for $55,000 More per Household] - and spend spend spend [Jul 30: Cash for Clunkers a Bit Hit, Government Asks "What Can we Buy You Next?"] [Jun 5, 2009: 1 in 6 Dollars of Income Now Via Government; Highest Since 1929] I think technically this is called a Ponzi scheme ... when people need money take from earlier investors and then promise things in the future that you can't deliver. Keep repeating it until someone actually catches onto the scheme, and then it blows up. Yes, indeed... it's exactly that.

I will talk until I am blue in the face but what we are seeing now is simply a preview of what will come to the nation in 15-20-25 years as Medicare and interest payments on our deficit will engulf us. I don't know when government workers begin to fake free market forces (and by government I mean education and healthcare) but instead of shrinking or taking the same kind of pain the private sector is taking, they are only expanding. Eventually the green shoots hit the fan. Gosh I am almost laughing at the alarms I was raising about a meager half a trillion budget deficit in 2008... it looks "cute and cuddly" in comparison with what is going to be happening now. [Mar 26, 2008: Annual Spring Entitlement Warning Falls on Deaf Ears] [Jul 28, 2008: US Budget Deficit to Half a Trillion]

Oh well, live for the moment, enjoy the government largess and don't worry about it - no one else is. As long as the stock market goes up as the Fed primes the system with easy money it means everything is greeeeat! (wait, isn't that how we got here? don't answer that - rhetorical question)
  • 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.
  • 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.
  • 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.
But other than that, things are going well.

  • The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.
  • 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.
Yawn ....
  • Social Security is in danger of running out of money earlier than the government projected just a few month ago. (we can borrow to take care of that)
  • Highway, mass transit and airport projects are at risk because fuel and industry taxes are declining. (we can borrow to take care of that too) 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. (see, told you - problem fixed!)
  • 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. (hello? see above -we can borrow to fix it! kick the can baby)
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.

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