August 4, 2009

AP Finally Discovers ‘Head-Snapping’ U.S. Receipts Dive, Still Understates Extent

Filed under: Economy,MSM Biz/Other Ignorance,Taxes & Government — Tom @ 4:33 pm

DownGraph0309.gifWell, it only took them about 3-1/2 months.

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:

USjulyAndYTDrecs09v08

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 or final 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:

- Third quarter 2008, -2.7% (revised from -0.5%)
- Fourth quarter 2008, -5.4% (revised from -6.3%)
- First quarter 2009, -6.4% (revised from -5.5%)
- Second quarter 2009, -1.0% (preliminary)

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 NewsBusters.org.

Lucid Links (080409, Morning)

Filed under: Lucid Links — Tom @ 6:42 am

Bret Stephens in today’s Wall Street Journal — China and India are rejecting carbon emission caps because they want their people to live longer. Specifically:

When Deng Xiaoping began introducing elements of a market economy in 1980, Chinese life expectancy at birth was 65.3 years. Today it is about 73 years. The numbers are probably a bit inflated, as most numbers are in the People’s Republic, but the trend line is undeniable. In India, life expectancy rose from 52.5 years in 1980 to about 67 years today. If this is the consequence of following the “American economic model” then poor countries need more of it.

The “American model,” of course has been one of industrial and economic expansion, by necessity requiring more energy and (gasp!) carbon emissions to make it happen. Environmental extremists are aghast at the idea that China and India want to raise the living standards of their people, many of who whom still subsist on $2 or less per day, using that same model — which, by the way, is the ONLY modern model that has ever raised large numbers of people up from subsistence.

Let’s not kid yourselves. Those attempting to force cap and trade on us are intent on bringing down our standard of living, which is bad enough. But in forcing their statist nonsense on the rest of the world, they also want to stop much of the rest of the world from EVERY emerging from dire poverty — in effect telling them they can drop dead, or at least do so earlier.

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Mickey Kaus makes a point I’ve made in a couple of comments (here and here) in the past few days, but misses the big point:

Tip for Dems: If you don’t want people to think that subsidized, voluntary end-of-of-life counseling sessions are the camel’s nose of an attempt to cut costs by limiting end of life care, then don’t put them in a bill the overarching, stated purpose of which is to cut health care costs! … I mean, did that provision have to be in the bill? If it really was just an added “benefit” for patients that had nothing to do with cutting costs (which I don’t believe for a minute), did it even belong in the bill? Isn’t there some group of Congressional Democrats–let’s call them “the leadership”–whose job it is to prevent their co-partisans from inserting into major legislation relatively minor provisions that will have the effect of sinking the whole package?

If it’s really not about advancing euthanasia, supporters would strip all of the end-of-life elements out of the bill.

But they won’t. That’s because there are dedicated care-rationers and “communitarians” in the highest reaches of the Obama administration who, along with the “leadership” in Congress, consider the end-of-life elements not nagging bugs, but critical features.

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Minnesota Governor Tim Pawlenty went after Massachusetts’s statist CommonwealthCare aka RomneyCare in the Washington Post:

Massachusetts’s experience should caution Congress against focusing primarily on access. While the Massachusetts plan has reduced the number of uninsured people, costs have been dramatically higher than expected. The result? Increased taxes and fees. The Boston Globe has reported on a current short-term funding gap and the need to obtain a new federal bailout.

Imagine the scope of tax increases, or additional deficit spending, if that approach is utilized for the entire country.

But it would have been better if he had called out Romney himself. The Massachusetts mess is Romney’s handiwork, and he can’t walk away from it.

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From the WSJ’s July car sales report (it gets updated monthly):

Among the Big Six: Ford was up 1.6% over a year ago; GM was down 18.9%; Chrysler, -9.4%; Toyota, -11.4%, Honda, -17,3%; Nissan, -24.6%.

Worth watching: Toyota, which beat out Ford for second place in July, had total unit sales of 174,872. That’s less than 13,000 away from GM’s July total of 187,582. GM’s place as Number 1 is in legitimate jeopardy.

Worth noting: Since Cash for Clunkers used up its $1 billion allotment just before month-end, you would think that most of the 240,000 or so new vehicles sold under the program (I believe the average clunker credit came in at about $4,200) were delivered by July 31.

If so, there is little to celebrate in the industry’s sales figures. July 2009′s total of 998,000 was 12% lower than last year’s 1,136,000. Take away the clunkers, and the decline would have been a pretty steep 33%. Of course there was a substitution effect (people who brought their cars in as clunkers who would have bought anyway in July going the normal trade-in route), but at the least the intent was that C4C would create new sales that might not have otherwise occurred until many months if not years later. If it really worked out that way, the car business is in reality still in the doldrums.

Positivity: Nick Vujicic

Filed under: Positivity — Tom @ 12:02 am

Watch in awe, and be inspired (HT Noel Sheppard at NewsBusters):