Year-end Deficit Report, Part 2: AP's Crutsinger Misses 'The Year of Going Galt'
That's hundreds of billion of dollars lower than the $1.75 trillion expected in February. The change, which caused "investments" in financial institutions, General Motors, Chrysler, and other entities to be accounted for on a "net present value" (NPV) basis, had an initial impact of over $175 billion when first implemented. Crutsinger ignored the change, even though its implementation occurred after that February estimate.
Though the end of a fiscal year represents a perfect opportunity to extend readers' understanding of how our government (sort of) works, Crutsinger also did not tell readers that the reported "deficit" is nowhere near the amount of the increase in the national debt that occurred during the fiscal year. As of September 30, the national debt was $11.910 trillion, or $1.885 trillion higher than the national debt a year earlier. That means that the most recent year's "unreported deficit" was $468 billion.
One other area where Crutsinger erred was in his breezy opening paragraph assessment that the precipitous drop in cash receipts during the most recent fiscal year -- officially understated for a reason I will note shortly -- was entirely due to the recession:
The federal budget deficit has surged to an all-time high of $1.42 trillion as the recession caused tax revenues to plunge while the government was spending massive amounts to stabilize the financial system and jump-start the economy.
.... For 2009, the government collected $2.10 trillion in revenues, a 16.6 percent drop from 2008. That was the largest percentage decline on records going back nearly seven decades.
Not so, sir.
The first thing to understand is that the drop in receipts from economic activity was much worse.
The only reason the government is able to claim that receipts dropped by "only" 16.6% is that Treasury treated the $96 billion in economic stimulus payments made during calendar 2008 as "negative receipts" instead of more properly accounting for them as outlays. A case could be made for this treatment if every taxpayer had received a stimulus payment proportional to the amount of tax paid. But this isn't what happened. Many higher-income tax payers did not get a stimulus check, while many lower-income filers who paid no tax at all still got one. By contrast, a similar mass-check payment program that occurred earlier this year involving payments that went to Social Security recipients was properly accounted for as outlays.
The properly stated degree of the receipts drop is 19.5%, as shown here:
Now that the full extent of the decline in receipts is clear, let's look at how and when the drops occurred. Let's start by looking at the situation quarter-by-quarter:
The fact of the matter is that this recession -- where the drop in real GDP has been less than 4% -- doesn't fully explain why year-over-year quarterly receipts dropped by as much as 31% during the past fiscal year. Something else is at work here. Martin Crutsinger should have looked into what that something else might be.
I described what I believed it was in July 2008. I came to this description after watching Democratic nominee-to-be Barack Obama, Nancy Pelosi, and Harry Reid spend the previous weeks demonstrating total disinterest in or hostility towards getting this economy the energy it needs to function and promising to radically raise taxes on the most productive in the name of wealth redistribution. Here is what I wrote:
Businesses and investors are responding to their total lack of seriousness (about energy and taxes) by battening down the hatches and preparing for the worst.
The most productive people began to withdrew into their cocoon not because the economy was in a serious recession -- at least as normal people define it (second quarter 2008's annualized growth was +1.5%). What happened is that enough of them to matter started "going Galt."
Looking back in April 2009 at the previous nine months, I wrote the following about what subsequently took place:
Starting in June (2008) and all the way through to Election Day, Nancy Pelosi, Barack Obama, and Harry Reid repeatedly told the country that they were ready, willing, and would soon be able to starve the country of the conventional sources of energy it needs to keep its economic engines running, regardless of the consequences, bowing before what may be the greatest hoax in human history. Enough high producers to make a difference believed them and abandoned their previous guarded optimism.
Starting in June and all the way through to Election Day, Pelosi, Obama, and Reid — but especially presidential nominee Obama — told the country that they were ready, willing, and would soon be able to punitively tax the 5% of the nation’s most productive so they could redistribute money to everyone else. Enough high producers to make a difference believed them and abandoned their previous guarded optimism.
In September, the decades-in-the-making, Democratic Party-driven housing and mortgage lending mess came to a head at Fannie Mae and Freddie Mac. Washington then allowed itself to be blackmailed into a series of financial sector and other bailouts that appeared to be, and have turned out to be, seemingly endless. Enough high producers to make a difference headed for the lifeboats and abandoned what little optimism remained.
Enough high producers to make a difference abandoned their spring (2008) optimism, not because of then-current economic conditions, which were at worst mediocre. They did so because of their assessments of what economic conditions would be in the not-too-distant future, based on the perilous pronouncements of Pelosi, Obama, and Reid. Many of those who didn’t catch on during the summer did so after observing the reckless September-October actions of the Washington establishment.
As a result, they took steps that businesspeople, entrepreneurs, and investors ordinarily take when a serious recession takes hold — not hiring, not expanding, letting people go and not replacing them, making worn-out equipment last longer instead of buying new, and others — before the serious recession took hold. They deliberately downsized in response to stated promises by powerful government officials Pelosi, Obama, and Reid to penalize and punish them and the economy as a whole, if and when they gained power.
In other words, enough high producers to make a difference preemptively “went Galt.”
The horrid collections results of the first three calendar quarters of this year, especially the cliff-dive in individual income tax receipts, were at least as much the result of the "going Galt" phenomenon as they were of the recession itself.
The third calendar quarter's shortfall of "only" 14.4% might appear to be cause for hope.
Nope. Thanks to this administration's failure to do anything about the chronic uncertainty and fear it has injected into nearly every nook and cranny of the economy, the government's collections shortfall has spread to what it gets through withholdings from workers' paychecks:
Year-over-year collections from withholdings fell over 10% during the most recent quarter, even though average quarterly unemployment increased "only" 3.5% during the intervening year. Many formerly well-paid employees are earning much less, paying not only less tax, but proportionally less as a percentage of their lowered income. Employees at the lower end of the pay scale are working fewer average hours. Given that most economists and other analysts both in and out of the government are saying that unemployment will stay high until at least late 2010, future year-over-year improvements in the withholdings number, which is by far the most important one on the list, are probably not on the horizon.
That's especially true because the disincentives to work hard have increased significantly during this administration's early months, and there are more possible disincentives on the horizon. This Forbes report by Janet Novack and Stephanie Fitch ("When Work Doesn't Pay For The Middle Class") explains how ugly the situation is in great detail.
What the Forbes pair is essentially telling us is that "Going Galt" has spread from the highest producers to above average and average ones. This, at least as much as the recession itself, explains why collections have cratered so severely, and why anyone expecting a robust recovery in money coming into the Treasury is probably setting themselves up for significant disappointment.
The establishment media's failures to recognize and cover the "going Galt" phenomenon of the past 16 months, and the more recent "it isn't worth it to work" trend, are two more significant journalistic oversights in a very, very long list of them.
Cross-posted at BizzyBlog.com.