AP Finally Discovers 'Head-Snapping' U.S. Receipts Dive, Still Understates Extent
Yours truly and others have since April noted a precipitous and likely historic dive in Uncle Sam's monthly collections. Year-over-year declines actually began last summer. The degree of monthly fall-offs has gotten "progressively" worse since then.
Yesterday, the Associated Press finally went beyond blandly reciting year-to-date comparisons to note the historic significance of the cash crash at the Treasury. Even then, Stephen Ohlemacher's report understated the degree of the decline in receipts from economic activity (i.e., excluding last year's stimulus payments, which were treated by Treasury as "negative receipts"). He also only carried his analysis through June 2009, even though sufficient information about the full month of July was available in Treasury's last daily statement of the month released yesterday afternoon.
Here are highlights of Ohlemacher's report:
Federal tax revenues plummeting
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.
..... 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.
..... "The numbers for 2009 are striking, head-snapping. But what really matters is what happens next," said (the Tax Policy Center's William) 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.
Estimating that collections for July will be $150 billion based on the breakdown at this link, here is how July 2009 and year-to-date fiscal 2009 compare to 2008:
July's result only came in less negative than the rest of the fiscal year so far because it is a very light month for corporate income and individual non-withheld tax receipts. As shown in the graphic at this link, incoming receipts in those two categories, which arrive most heavily during months when quarterly estimated payments are due (April, June, September, and December for calendar-year corporate estimates, with final payments for such corporations due the next March; individual estimated payment dates are April, June, September, and the following January, but final payment is of course due the next April), were 37% and 35% lower, respectively, during the quarter that ended June 30, 2009 than in the same quarter of 2008.
Including July, year-to-date receipts from economic activity are down by over 20.4%. That, and not reported receipts, is the comparison benchmark Ohlemacher should have used, because it is the better indicator of what the recession and other influences have done to government tax inflows.
As to "other influences," the decline in receipts since the recession as normal people define it (i.e., two consecutive quarters of economic contraction) began in the third quarter of 2008 has been exponentially worse than the decline in economic output, to the point where it's plausible to believe that other influences indeed exist. For those who missed it, last week's comprehensive revision by the Bureau of Economic Analysis told us that annualized GDP contractions since then have been as follows:
So the economy, based on the most recent estimates, contracted by a bit less than 3.9% in the 12 months ended June 30. That degree of decline would not seem to fully explain a 20% receipts dive, which is why those who claim that the "going Galt" phenomenon is real seem to have a point.
Beyond that, what some call the FUD factor (Fear, Uncertainty, and Doubt) also has to have some relevance. Barack Obama, both as the Democratic nominee and as President, with the help of Nancy Pelosi and Harry Reid during the entire time, has sown more than his fair share of FUD with TARP, government takeovers, and other actions and legislation. I also have to wonder if the blatant tax compliance problems of so many administration officials, up to and including the Secretary of the Treasury himself, isn't beginning to have a negative impact.
Maybe it's too much to expect AP reports and reporters to cite possible factors other than the recession on their own. But it isn't unreasonable to expect that reporters like Ohlemacher would cite the disparity in the GDP v. receipts dive and ask economists and others who have looked at it why it has been so disproportionate.
As the receipts dive continues, it has to make you wonder not only if the second quarter's -1.0% will hold up, but also if the return to positive growth that is supposedly the consensus for the second half of the year will really materialize.
Cross-posted at BizzyBlog.com.