Washington, DC 20002
Iris J. Lav
Board of Directors
David de Ferranti, Chair
John R. Kramer, Vice Chair
Henry J. Aaron
Barbara B. Blum
Marian Wright Edelman
James O. Gibson
Beatrix Hamburg, M.D.
Richard P. Nathan
Robert D. Reischauer
Juan Sepulveda, Jr.
William Julius Wilson
REVENUES AT ALL LEVELS OF GOVERNMENT COMBINED
Combined federal, state, and local revenues fell last year to their lowest level as a share of the economy since 1968, according to a Center analysis of just-released Commerce Department data that provide the first look at revenues and expenditures for all of fiscal year 2003. Total expenditures for government at all levels rose in 2003 but remained lower as a share of the economy than in every year from 1980 through 1996.
Tracking changes in government revenues and expenditures as a share of the economy is the standard way that analysts and institutions such as the Congressional Budget Office assess budget trends over extended periods of time.
“The steep drop in revenues — especially federal income tax revenues — over the past few years is the main reason why government as a whole now faces a substantial deficit,” stated Isaac Shapiro, the report’s lead author. “If new tax cuts are enacted that aren’t paid for, deficits will grow still larger.”
Weaker Revenues Could Worsen Boomer-Related Budget Crunch
Revenues fell at all levels of government in 2003, but most sharply at the federal level. In fact, federal revenues fell to their lowest level as a share of the economy since 1959, a time when Medicare, Medicaid, most federal education aid, most environmental programs, and various other federal endeavors did not exist. This decline primarily reflects a weakening of federal income taxes, which in turn is the result of the poor economy and the tax cuts enacted since 2001.
If the tax cuts are made permanent, federal revenues will remain at historically low levels even after the economy recovers. That could lead to a severe budget crunch when the baby boomers retire and government retirement programs grow much costlier.
The report, Total Revenues from All Levels of Government Drop to Lowest Share of Economy Since 1968, is available at the Center’s website at <https://www.cbpp.org/1-15-04bud.htm>.
The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.
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