Federal Tax Revenues Plunge

Kurt Brouwer June 3rd, 2009

My friend, John Waggoner, at USA Today, wrote a piece on plunging Federal income tax revenues. This shouldn’t come as a surprise to anyone, but the numbers are going to require revisions in deficit estimates [emphasis added]:

IRS tax revenues fall along with taxpayers’ income (USA Today, May 29, 2009, John Waggoner)

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.

…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.”…

This last point, from the White House, is both revealing and scary. The WH is saying that, even if it’s best case scenario comes about, large deficits will continue and the national debt will double over the next 10 years.

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