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http://www.pantagraph.com/news/local/article_59e85da8-807a-11de-ba38-001cc4c03286.html
Federal government sees biggest tax
revenue drop since 1932 - August 4, 2009
By Stephen Ohlemacher | Associated Press
WASHINGTON, D.C. -- 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."
While much of Washington is focused on
how to pay for new programs such as overhauling health care
- at a cost of $1 trillion over the next decade - existing
programs are feeling the pinch, too.
Social Security is in danger of
running out of money earlier than the government projected
just a few month ago. Highway, mass transit and airport
projects are at risk because fuel and industry taxes are
declining.
The national debt already exceeds $11
trillion. And bills just completed by the House would boost
domestic agencies' spending by 11 percent in 2010 and
military spending by 4 percent.
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.
Is there a way out of the financial
mess?
A key factor is the economy's health.
The future of current programs - not to mention the new ones
Obama is proposing - will depend largely on how fast the
economy recovers from the recession, said William Gale,
co-director of the Tax Policy Center.
"The numbers for 2009 are striking,
head-snapping. But what really matters is what happens
next," said 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.
Social Security tax receipts are down
less than a percentage point from last year, but in May the
government had been projecting a slight increase. At the
time, the government's best estimate was that Social
Security would start to pay out more money than it receives
in taxes in 2016, and that the fund would be depleted in
2037 unless changes are enacted.
Some experts think the sour economy
has made those numbers outdated.
"You could easily move that number up
three or four years, then you're talking about 2013, and
that's not very far off," said Kent Smetters, associate
professor of insurance and risk management at the University
of Pennsylvania.
The government's projections included
best- and worst-case scenarios. Under the worst, Social
Security would start to pay out more money than it received
in taxes in 2013, and the fund would be depleted in 2029.
The fund's trustees are still
confident the solvency dates are within the range of the
worst-case scenario, said Jason Fichtner, the Social
Security Administration's acting deputy commissioner.
"We're not outside our boundaries
yet," Fichtner said. "As the recovery comes, we'll see how
that plays out."
The recession's toll on Social
Security makes it even more urgent for Congress to address
the fund's long-term solvency, said Sen. Herb Kohl, D-Wis.,
chairman of the Senate Aging Committee.
"Over the past year, millions of older
Americans have watched their retirement savings crumble,
making the guaranteed income of Social Security more
important than ever," Kohl said.
President Barack Obama has said he
wants to tackle Social Security next year, after he clears
an already crowded agenda that includes overhauling health
care, addressing climate change and imposing new regulations
on financial companies.
Medicare tax receipts are also down
less than a percentage point for the year, pretty close to
government projections. Medicare started paying out more
money than it received last year.
Meanwhile, the recession is taking a
toll on fuel and industry excise taxes that pay for highway,
mass transit and airport projects. Fuel taxes that support
road construction and mass transit projects are on pace to
fall for the second straight year. Receipts from taxes on
jet fuel and airline tickets are also dropping, meaning
Congress will have to borrow more money to fund airport
projects and the Federal Aviation Administration.
Last week, Congress voted to spend $7
billion to replenish the highway fund, which would otherwise
run out of money in August. Congress spent $8 billion to
replenish the fund last year.
Rep. Richard Neal, D-Mass., chairman
of the House subcommittee that oversees fuel taxes, is
working on a package to make the fund more self-sufficient.
The U.S. Chamber of Commerce, which doesn't back many tax
increases, supports increasing the federal gasoline tax,
currently 18.4 cents per gallon.
Neal said he hasn't endorsed a
specific plan. But, he added, "You can't keep going back to
the general fund." |
