April Tax Revenue Falls – New Taxes To Come

Back in January I wrote:

The United States government 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.

Well, April’s number are in now … USA Today writes IRS tax revenue falls along with taxpayers’ income:

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.

What we are seeing now is only the beginning of a massive shortfall. I followed up on the article above in February:

Now that we have updated figures on coming expenses it’s time to update the deficit predictions:

* $1.65 trillion for 2009
* $1.6 trillion for 2010
* $1.95 trillion for 2011
* $2.2 trillion for 2012

If President Obama keeps spending like this, and really wants to cut the deficit in half by 2013, he will at one point be faced with no other choice but to raise taxes on all Americans, rich, middle class, and poor. This is of course nothing new. Taxes have been rising in the US for the past century.

Taxes on all Americans, rich, middle class, and poor? Like a national sales tax? No way, our dear legislators would never consider such a rip off, would they? Why, sure they would … Once Considered Unthinkable, U.S. Sales Tax Gets Fresh Look:

With budget deficits soaring and President Obama pushing a trillion-dollar-plus expansion of health coverage, some Washington policymakers are taking a fresh look at a money-making idea long considered politically taboo: a national sales tax.

Common around the world, including in Europe, such a tax — called a value-added tax, or VAT — has not been seriously considered in the United States. But advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.

At a White House conference earlier this year on the government’s budget problems, a roomful of tax experts pleaded with Treasury Secretary Timothy F. Geithner to consider a VAT. A recent flurry of books and papers on the subject is attracting genuine, if furtive, interest in Congress. And last month, after wrestling with the White House over the massive deficits projected under Obama’s policies, the chairman of the Senate Budget Committee declared that a VAT should be part of the debate.

What caught my eye was this picture and comment in the article above, giving us an idea of which income group will suffer most from a national sales tax:

Demonstrators called for a suspension of value-added tax on food in Manila last year. Such a tax is attracting real interest among U.S. policymakers. (By Romeo Gacad — Agence France-presse Via Getty Images)

… I wish I wasn’t so sure that under this clueless and misguided Congress, this new tax is bound to happen sooner or later; unless the people raise hell over it and unconditionally reject all the tired, dull, boring, and false excuses and lies that President Obama, Nancy Pelosi, Harry Reid, and all their obedient Congressmen and Senators will try and come up with.

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The Coming US Tax Receipt Shortfall

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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