The Coming US Tax Receipt Shortfall

posted by Nima

January 25, 2009 · Posted in Government 

The United States federal and state governments will be facing an unprecedented tax shortfall in the years to come. Declining corporate profits, asset values, and skyrocketing unemployment will cause the tax base to fall flat. It will most likely become evident in April of this year and get progressively worse in the years to come.

The common sense solution would be for the federal and state governments to once and for all abandon wasteful programs and departments and dramatically cut down on government expenses. Unfortunately this will not in any way be the consensus among Congress and the Executive Branch. They will see no other way out than to drastically raise taxes as a matter of “urgency” and “in the nations interest”. This bureaucratic intervention will of course do nothing but stifle growth and progress and thus have an additional adverse effect on tax receipts that will leave government bureaucrats puzzled.

Since it appears as though currently tax hikes are not feasible, the government will keep trying to finance the shortfall with a progressively increasing budget deficit.

Past recessions and depressions can give us an idea as to what the expected tax receipts over the next years might be.

  • From 1921 through 1923 federal tax receipts dropped from $6.6 billion to $3.9 billion, a drop of about 20% per year.
  • From 1930 through 1933 federal tax receipts dropped from $4 billion to $2 billion, a drop of about 17 % per year
  • From 2000 to 2003 federal tax receipts dropped from $2 trillion to $1.8 trillion, a drop of about 3.3% per year

The estimated receipts for 2008 are $2.5 trillion. It is save to assume that the upcoming tax shortfall will dwarf all precedents. But to make the outlook as optimistic as possible we shall assume a drop of just 10% per year:

Federal tax receipts will fall to $2.25 trillion in 2009, to $2 trillion in 2010, to $1.75 trillion in 2011, and to $1.5 trillion in 2012.

Meanwhile there is no indication that government expenses will fall. Even with the current, now completely obsolete, budget estimates for government expenses, the Federal deficit would develop as follows:

  • $850 billion for 2009
  • $1 trillion for 2010
  • $1.3 trillion for 2011
  • $1.7 trillion for 2012

These are very optimistic figures. It wouldn’t be surprising if actual figures turned out to be around double or triple those numbers, unless a true change in policy were to occur.

A true change would of course necessitate a complete, yet structured and well planned, abandonment of whole departments and government programs, including but not limited to Homeland Security, Education, Social Security, and Health and Human Services, along with a significant reduction of defense and military spending to sustainable levels around $100 billion per year.

This necessity has not reached the public in the slightest. Whoever utters it will be scorned as a neoliberal, callous, selfish miser who has nothing but his own interest in mind. It will take a complete collapse of this system in order for people to wake up to reality and listen.

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