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Income Tax Revenues Drop by 34%

As predictable as the sun rises in the east and sets in the west, the tax revenues drop during a recession. But this recession is no run of the mill recession because we have as president a man who does not understand the concept of spending within one's means, so we have exploding deficits that will just explode that much further. Can you see the catastrophe on the horizon?

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.

"These are staggering numbers," Lynch says.

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, however, insists on looking at the world through its stimulus colored glasses:

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."

But hey, no worries! Obama says all we have to do is take over health care and all will be copacetic. Really. Ignore the CBO chart of the federal deficits that will only get worse and worse.

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Comments (17)

Copacetic or Copasetic.</p... (Below threshold)
epador:

Copacetic or Copasetic.

Of course , in Amerika, we schpell it wid a "k" OK?

Copacetic?Schkrewe... (Below threshold)
JLawson:

Copacetic?

Schkreweded ish more laik it!

The deficit will TOP $2 TRI... (Below threshold)

The deficit will TOP $2 TRILLION this year...and unemployment will TOP 11% by early 2010.

In January 2010 President Obama will give his first true State of the Union speech...having in power one full year. As the economy flounders, as our enemies worldwide contemplate aggression (or SKIP contemplating!) and as Americans increasingly squirm under the weight of bloated government, I expect President Barak Obama to look out at America and remind us:
"I inherited all this from George Bush!"

You are probably correct Ju... (Below threshold)
DaveD:

You are probably correct Justrand. I am wondering if we would be much better off if we just paid the President and the Congress to do nothing and let the private sector struggle to find its way out of this on its own.

DaveD...remember the good o... (Below threshold)

DaveD...remember the good old days of a disfunctional Congress, beset by "gridlock"???

Now we have an ALL TOO FUNCTIONAL Congress, and a President bent ramming through his agenda without a backward glance.

Ever play Jenga? You're living in it!

"Income Tax Revenues Drop b... (Below threshold)
retired military:

"Income Tax Revenues Drop by 34%"

Obama will use this as an excuse to raise our taxes by another 34%.

Obama and his misbegotten i... (Below threshold)

Obama and his misbegotten ilk will find a way to "not waste" each and every "crisis"...including those of their creation.

More and more "temporary" measures (ala Government Motors, TARP controls, etc.) will be put in place...providing the government with more and more control, and more and more POWER!

The Left is SILENT about this power grab, because their buddies are doing the grabbing. Pathetic!

Let's see, we'll have a Nat... (Below threshold)
Hermie:

Let's see, we'll have a National Sales Tax, Carbon Taxes (via 'Cap and Trade'), cigarette, alcohol tax raises, gas tax increases, and other taxes on 'the rich'.

"The White House thinks ... (Below threshold)
Oyster:

"The White House thinks that tax revenue will increase in 2011, thanks in part to the stimulus package,..."

Remember that statement. After a 34% drop over the last year, a 10% increase by 2011 (still more than a year and a half away) will be lauded as a "dramatic comeback". This is all, of course, if one is happy about the government getting more money.

Just wait until the Cap & T... (Below threshold)
iwogisdead:

Just wait until the Cap & Trade fiasco impacts the economy. On top of that, health care "reform" will be a further huge drain on the federal budget.
Tax revenues just might go up in 2011 anyway, because by then the currency will be irreparably damaged and we will be moving into hyperinflation, thanks to the all the dough being borrowed and thrown away right now.

Altered the spelling on cop... (Below threshold)

Altered the spelling on copacetic. I hadn't used the word let alone spelled it in years, but it seemed perfect in this context. Too bad I blew it.

The losses in income tax re... (Below threshold)
Mark L:

The losses in income tax revenue are not coming primarily from those who have been laid off -- unless layoffs are clustered in those making in excess of $150K annually. American earning less than the median income (somewhere around $60K) pay only 10-15% of total income taxes.

Do the math. $138 billion / 6 million = $23K in income taxes lost for EVERY person laid off. How many of you pay $23,000 a year in income taxes?

Nope. The lost tax revenues are due in part to high-income individuals "going Galt." Many of these folks are trading income for more leisure time. Why not? Why work 60-70 hours/week when you expect most of what you earn after the first 40 hrs to go to the government, instead of to you?
Of course, most of these people are small business owners. So they cut back the hours of their businesses -- and lay off the lower-income workers (the bulk of that 6 million) because they do not need as many people when their business is open only 30-40 hrs per week instead of 70-90. So even if all of those laid-off folks got jobs at their old salaries you will still not make up even a quarter of the shortfall.

What's the government going to do? Force someone who was making $400K/yr but cut back to making $250K/yr to work extra hours? How? Require business to retain workers? That would cause a huge round of layoffs before that law came into effect.

No -- the government is screwed. Until they convince the high wage earners -- small business owners -- to go back to work, tax revenues will continue dropping. The government could raise taxes, but even if you double the taxes paid by those making median income or lower you would still not make up the loss. And if you double taxes on those from the 50th percentile on up, then people have even less incentive to work. You would be better off on the government dole, free to pursue your hobbies in your free time, than working 40-60 hrs/week to achieve an identical standard of living as the indolent living off the government dole. (Because the government has taken so much of what you earn in taxes.)

Mark L... (Below threshold)

Mark L

I started to say give Mark ... (Below threshold)

I started to say give Mark L a shout out for a splendid bit of analysis!!! But my PC had other ideas!

cheers, and truly a great summation, Mark L

Please correct me if I am w... (Below threshold)
JRB:

Please correct me if I am wrong.
Tax revenue will rise in 2011, due to the expiration of the Bush tax cuts.

This really is "Hope & Chan... (Below threshold)
ODA315:

This really is "Hope & Change you can believe in" LOLOLOL

I read yesterday a handful of dem congressmen and the OMB troll are discussing a 10% VAT. So best figure another 10% tax on EVERY transaction performed.

"Please correct me if I am ... (Below threshold)
JLawson:

"Please correct me if I am wrong.
Tax revenue will rise in 2011, due to the expiration of the Bush tax cuts."

Oh, it'll rise all right. But not all that much - any money from that probably wouldn't cover more than maybe a third of the 'Stimulus' bill.

So why so much emphasis on it from the left? Because as long as people don't REALIZE just how much won't be generated, it's useful for class-warfare purposes.

By the way, JRB - you might want to check out the results of the 'Luxury Tax' that was passed in 1990 and repealed in 1993.

"For example, in the early 90s a 10% luxury tax was imposed on purchases of cars selling for $30,000 or more, airplanes, boats, furs and expensive jewelry. The result of the tax, however, was that purchases of these items dropped sharply, harming the producers and retailers of these goods severely. That luxury tax was repealed in the Revenue Reconciliation Act of 1993."

It was also revenue-NEGATIVE - in costing a lot more to collect than it ever brought in. But 'luxury taxes' to soak the rich sound SO tasty, don't they?

Just ignore what happens to the producers of the items that are taxed. And remember - there's a reason why they're called 'luxuries' instead of 'necessities'.




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