Too Much Out and Not Enough In

OK, regular visitors won't be surprised by the news. But it's still worth noting. When it comes to our nation's deteriorating financial position, it's not just about the taxpayer funds being handed out like candy to failed firms, scam artists, and political opportunists. It's also about the money coming in the door. As CNNMoney.com notes in "Uncle Sam Won't Make Ends Meet," rising unemployment, dwindling profits, and a decline in spending on all sorts of tax-generating activities has done a number on federal tax revenues.

The IRS will bring in a lot of cash this week, but not nearly enough to foot the government's bill this year.

For Uncle Sam, Wednesday is a big payday. But what the government rakes in on April 15 - and throughout the year - won't be enough to cover its expenses.

Federal coffers are much less flush than they were last year as tax receipts have fallen sharply because of the economic downturn.

As of March - or halfway through fiscal year 2009 - federal tax revenue is 14% lower than last year, the Congressional Budget Office recently reported.

In dollars and cents terms, that means Washington has $160 billion less to spend today than it did a year ago. All the while, the demands on the government to fund the country's way out of recession are on a steep trajectory north.

"Receipts from almost all sources declined, reflecting the continuing effects of the recession and recently enacted legislation," the CBO noted in its monthly budget review.

The economic crisis is showing up in the government's profit-loss statement in myriad ways.

Considerably more people are out of work than they were last year - which means they're not paying as much in income taxes. Corporate earnings have taken a beating, which means less taxable green coming in from that corner. And refunds have increased for individuals and corporations alike. All told, individual income tax receipts dropped 15% while those for businesses fell a whopping 57%.

In addition, revenue from miscellaneous taxes and fees has fallen by $10 billion, or 12%. The CBO attributes that decline in part to losses in the Federal Reserve portfolio of assets, in particular a $3 billion drop in market value of the corporation set up last year to smooth the takeover of investment bank Bear Stearns by JPMorgan Chase.

At the same time, the country's spending levels midway through the fiscal year rose by $480 billion, or 33 percent, compared to last March. The jump is due in large part to the government's funding of the Troubled Asset Relief Program as well as Fannie Mae and Freddie Mac. There were also significant increases in how much the federal government spent on Medicaid (up 17%) and "other activities" (up 21%) such as providing unemployment benefits.

Spending also rose - although modestly by comparison - for defense, which accounts for roughly 20% of the total federal budget; and for Social Security benefits, which account for another fifth of the budget.

Of course, this is hardly the first year Uncle Sam has taken in less than he will have to pay out. In fact, that's been the case for all but five of the past 40 years, according to CBO data.

The difference this year is that the spending demands on the federal government have grown in historic ways. In fact, the CBO estimates that the annual deficit will spike to between $1.67 trillion and $1.85 trillion. That's nearly four times last year's then-record $455 billion deficit.

Over the next few weeks, President Obama will submit his most detailed budget proposal to date as lawmakers in the House and Senate try to reconcile their own versions of the 2010 fiscal plan.

But for the keepers of federal tax revenue, it's a safe bet that next year is likely to be déjà vu all over again. The budget proposals on the table all exceed $3.5 trillion. And given the state of the economy, no one is proposing to raise taxes in 2010.

Comments

[Tim]

What madness.

[scottt]

shotguns
shells
water well
canned food
dried foods
rifles
ammo
pistols
ammo
first-aid kit
gasoline
batteries
generator
horse manure
heirloom seeds
riot gear
ammo
birth certificate
picture ID
ammo
buckets and shovel for digging tubers
hoe-pick-axe-maddock-sythe-sickle
chickens and feed
ammo
edible wild plants guide
etc.

[roger]

(our nation's deteriorating financial position,)Is peanuts
compared to climate change check out Australia!
Capitalism is pure madness... Why? because it promotes infinite growth
accumulation and monopoly of great wealth for the few'
rich people eating very rich food in great quantities die
of clog arteries

[Sandman]

To see 100 percent refunds including SS and others go to www.losthorizons.com.
Learn the fascinating truth about the "income" tax and benefit like other Americans in amounts well over 9 million dollars since 2003 including my personal victory for the rule of law.

[nevket240]

Roger. keep smokin dude.

Is the Fat Lady singing, "the Internationale"????

regards

[Namke von Federlein]

"like candy to failed firms, scam artists, and political opportunists"

I'm not certain if the point you wish to make is the point that you are making.

When I see a very sensible person like yourself using this kind of language freely - I see trouble.

Don't get me wrong - I agree. In fact, I may have the dubious distinction of being the first person on a blog to call Paulson an idiot in public (just after TARP 1). I apologized on my blog the next day.

I felt that my inflammatory language would not be helpful.

Perhaps it is a time for practical talk and practical ideas?

In my opinion, we are approaching what I call 'The Great Disconnect'. Citizens move to a barter economy as their most aggressive act of protest against taxes paid and given to - as you put it so nicely - "failed firms, scam artists, and political opportunists"

However, your blog is an Internet powerhouse. My little blog just offers money saver tips, safe Internet surfing, and some fun stuff to a handful of readers every day.

Would you please put at least one practical post on this blog every day? A money saver tip that is good for the environment and good for health - and there are thousands of them - might help your readers to leave your blog richer and stronger people?

A two-line blog post with a money saver idea followed by your regular quality reporting might make this blog a powerhouse of positive energy? The failed firms, scam artists and political opportunists fear only practical people?

My web site is still searching and experimenting for ways to make every visit a money-saver and an inspiration to people. But I am not a top blogger like yourself - I am still working on it. I hope that Financial Armaggedon will show me the way.

[mickslam]

We are not facing financial ruin. The budget deficit is the best thing that could happen to the U.S. and the world. We simply need more money in circulation to avoid deflation. The only way that money is created is by deficit spending.

Think back to the very first tax day. How did these people get U.S. dollars to pay their taxes? The govt. spent first, then taxed. Was the U.S. govt able to borrow those dollars? No. There were none in existence yet, so they could not issue treasuries to borrow them. No the money was created by U.S. deficit spending. The dollars were spent first.

The traditional view of money creation is flawed. It is based on gold standard thinking. Money is created by deficit spending, and the initial demand for money comes from taxation. If we are facing deflation, we need to spend more and tax less. If inflation, tax more and spend less. We are clearly facing global deflation at this moment.

We are not on the gold standard any more, because when we had the gold standard, the world economy had so many recessions, depressions, and crisis that it was obviously not working. We did not abandon the gold standard because the it worked so well. We abandoned it because it did not work.

Go to

www.moslereconomics.com

and read the mandatory readings closely.