May 12, 2003
NEW CBO DATA SHOW DEFICIT
WILL BE HIGHER THAN EARLIER FORECAST AS REVENUES
FALL TO THEIR LOWEST LEVEL
IN DECADES, AS A SHARE OF GDP
With Pending Tax Cut,
Revenues This Year Will Hit Lowest Level,
As Share of GDP, Since
the Eisenhower Administration
by
Isaac Shapiro
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A new report that the Congressional
In combination, the deterioration in federal revenues reflected in the new CBO report and the additional tax cuts contained in legislation likely to be enacted within the next few weeks will lead taxes to fall this year to their lowest level as a share of the economy since 1959, the next-to-last year of the Eisenhower administration. This finding applies regardless of whether Congress ultimately approves the Senate tax-cut level or the House level. The new CBO figures also have disturbing implications for revenue collections and deficits for years to come.
Even without any new tax cuts, receipts, measured as a percentage of the economy, are on course to fall to levels not seen for a number of decades.
CBO projects that revenues for this fiscal year will fall $50 billion to $80 billion below its March projection. If federal revenues fall $50 billion below the March projection, they will equal 17.1 percent of the economy (i.e., of the Gross Domestic Product) in 2003. [2] That would be the lowest level since 1965.
If federal revenues fall $80 billion below CBO’s March projection, revenues will equal 16.8 percent of the economy, the lowest level since 1959.
In short, even without any new tax cuts, receipts as a percent of the economy are on course to fall to their lowest level since either 1965 or 1959.
|
Revenues as a Share of GDP, 2003 |
Notes |
CBO estimate that revenues will be $50 billion below its earlier forecast |
17.1% |
Lowest since 1965 |
With Senate
|
16.9% |
Lowest since 1959 |
With House
|
16.6% |
Lowest since 1959 |
|
|
|
CBO estimate that revenues will be $80 billion below its earlier forecast |
16.8% |
Lowest since 1959 |
With Senate
|
16.6% |
Lowest since 1959 |
With House
|
16.3% |
Lowest since 1959 |
The data in the new CBO report also show that revenues for fiscal year 2003 will fall below their 2002 level. This will mark the third year in a row that revenues have fallen on a nominal basis (i.e., even before adjusting for inflation)[3]. The last time that revenues declined on a nominal basis for three consecutive years was from 1920 to 1923.
The tax cuts moving forward in Congress will cause these levels to drop further and will assure that revenues fall to their lowest level as a share of the economy since 1959.
Moreover, the figures cited so far refer to total federal revenues as a share of the economy. The story becomes even more remarkable when just federal income taxes are considered. Even under CBO’s most optimistic scenario — and before adding in any new tax cuts — income tax receipts are on course to drop to their lowest level, measured as a share of the economy, since 1943.
Although the decline in revenues
partly reflects the decline in the
These findings should give some pause to the current drive to enact further tax cuts. They also intensify concerns over recent press reports that the Administration plans a tax cut every year.[5] Receipts have already fallen to sufficiently low levels that questions about the adequacy of the nation’s revenue base must be raised, especially with the retirement of the baby-boom generation fast approaching. Moreover, the data showing that the decline in receipts has been greater than expected also means that the economy already is receiving a larger fiscal stimulus than had previously been recognized; the decline in revenues translates into a larger deficit, which means more fiscal stimulus.
Federal Receipts as a Share of Gross Domestic Product, Figures do not reflect any further tax cuts |
||||
1951 |
16.1% |
|
1978 |
18.0% |
1952 |
19.0 |
|
1979 |
18.5 |
1953 |
18.6 |
|
1980 |
18.9 |
1954 |
18.4 |
|
1981 |
19.6 |
1955 |
16.6 |
|
1982 |
19.1 |
1956 |
17.4 |
|
1983 |
17.5 |
1957 |
17.7 |
|
1984 |
17.4 |
1958 |
17.3 |
|
1985 |
17.7 |
1959 |
16.1 |
|
1986 |
17.5 |
1960 |
17.8 |
|
1987 |
18.4 |
1961 |
17.7 |
|
1988 |
18.1 |
1962 |
17.5 |
|
1989 |
18.3 |
1963 |
17.8 |
|
1990 |
18.0 |
1964 |
17.6 |
|
1991 |
17.8 |
1965 |
17.0 |
|
1992 |
17.5 |
1966 |
17.3 |
|
1993 |
17.6 |
1967 |
18.3 |
|
1994 |
18.1 |
1968 |
17.6 |
|
1995 |
18.5 |
1969 |
19.7 |
|
1996 |
18.9 |
1970 |
19.0 |
|
1997 |
19.3 |
1971 |
17.3 |
|
1998 |
19.9 |
1972 |
17.5 |
|
1999 |
20.0 |
1973 |
17.6 |
|
2000 |
20.8 |
1974 |
18.3 |
|
2001 |
19.9 |
1975 |
17.9 |
|
2002 |
17.9 |
1976 |
17.2 |
|
2003est. |
17.6* |
1977 |
18.0 |
|
2003est. |
17.1** |
|
|
|
2003est. |
16.8*** |
*CBO baseline, March 2003. |
End Notes:
[1]
In its new report — “Monthly
[2] This calculation reflects both CBO’s projection of receipts and its projection of the size of the economy (i.e., the Gross Domestic Product). With actual GDP information available for the first half of fiscal 2003, CBO’s GDP.
[3] Revenues were $2.025 trillion in fiscal year 2000. They declined to $1.991 trillion in FY 2001 and $1.853 trillion in FY 2002. CBO now projects they will total $1.811 trillion to $1.841 trillion in FY 2003.
[4]
Even if one assumes the level of positive economic feedback from the
2001 tax cut that the President’s Council of Economic Advisors has
claimed, the tax cuts enacted in the past two years will reduce revenues
by an estimated $109 billion in 2003. See the Center on
[5]
Dana Milbank and Dan Balz, “GOP Eyes Tax Cuts as Annual Events,” The