Wednesday, August 5, 2009

Tax Revenues Fall The Most Since The Great Depression

The economic recession has put the US on pace to lose 18% of tax revenue compared to last year while the federal deficit balloons to historic highs. For more on the government's budget problems see the following post by Tim Iacono from The Mess That Greenspan Made.

It's a good thing the U.S. government owns a printing press and knows how to use it because, from the looks of these revenue curves (hoisted from this AP story), the chance that new borrowing will cover all the nation's spending grows slimmer by the day.

A curve for the government's recently increased spending added to the ones for revenue above would make for an even more dismal looking chart.

Some details:
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.

"Our tax system is already inadequate to support the promises our government has made," said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.

"This just adds to the problem."

Under the new worst case scenario for social security (which may already be outdated), the "trust fund" goes into deficit in just four years and runs out of money in 2029.

The current thinking is that we'll "grow" our way of our current problems...

This post has been republished from Tim Iacono's blog, The Mess That Greenspan Made.

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