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.

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7 Comments

  1. According to the instructions for Form 1120 [Corporation Tax Return] at http://www.irs.gov/pub/irs-pdf/i1120.pdf
    [pg 4, Estimated Tax Payments]:

    “The installments are due by the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.”

    This would be April, June, September & December for calendar year filers.

    Comment by HelenG — August 4, 2009 @ 6:20 pm

  2. Let’s ask another question, are tax receipts considered a contemporaneous measurement of the economy? If so, then how can anyone with a straight face claim the recession is over or almost so if tax receipts are still diving?

    Better yet, Tom can you update your monthly tax receipt chart to show the YOY percent per month? Just to wring out the deceptive percentage change of the 2008 receipts drop, make it compared to monthly receipts in 2007.

    Comment by dscott — August 4, 2009 @ 6:44 pm

  3. #1, fixed; thanks. I always knew the corporate return and final payment date for calendar year C Corps is March 15. I thought the first estimated payment was as well. The language is accurate now.

    Comment by TBlumer — August 4, 2009 @ 10:22 pm

  4. I can’t speak for anyone but myself, but I can tell you that, for me, “Going Galt” is real. Since PresBO took office, we’ve cancelled a trip to Hawaii, we don’t go out to eat once a week as we used to, we rent videos instead of going to the movies, we haven’t bought any new clothes, etc. In short, we’ve reduced our discretionary spending to as close to zero as we can. Plans to start a new business have been put on hold, as well.

    I figure that between inflation, taxes (a double whammy coming, as the Bush tax cuts expire and the Dems jack up rates), free health care, and cap-and-trade, I’m going to need to hold on to every penny I can.

    I’ve also reduced my withholding to cover only 90% of what I think this year’s final liability might be. I wonder if anyone else thinks they’d rather worry about the penalty for underwithholding later?

    Comment by Diffus — August 5, 2009 @ 12:32 am

  5. This just proves how dense these people are. You don’t try to pass a major bill when the econamy is in the tank. Fix the problems that we have, first. Then we can talk about healthcare. Unfortunatly, the current problems we have are the house, senate and the whitehouse. It’sthe blind leading the blind. We need to freeze wages at the present level for every American. This would not include the NY senate. They wouldn’t even stand for the Pledge of Allegiance. Next, cut the wages of our elected officials. They caused it, they can take a cut. Next, get rid of the Illegal “czars”. We don’t need them.

    Comment by Mynewscorner — August 5, 2009 @ 3:06 am

  6. Charts man! Charts!

    http://news.yahoo.com/nphotos/Graphic-shows-change-federal-tax-receipts-1980/photo//090803/480/55ddbd49a6c744cc9d88043ffe1f9eba//s:/ap/us_plummeting_taxes

    Comment by dscott — August 6, 2009 @ 1:38 pm

  7. [...] Tax Revenue: Here is a nice chart showing the precipitous drop in tax revenue. Tax revenue is totally dependent on business activity and then employment. Any drop in business activity causes fewer profits and therefore fewer taxes to be collected on those profits. The same goes for employment, when lots of people are laid off, they no longer are contributors via their wages. Here is an excellent discussion on what’s been happening with tax collections. [...]

    Pingback by Primer On The Economy &laquo Publius Forum — August 19, 2009 @ 1:02 am

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