The Taxman Shrinketh

A friend forwarded an interesting piece titled “Hemorrhaging – Especially Uncle Sam” on the ramifications of the sharp recent drop in federal tax revenues. The article is from a new blog, Maenianum Secundum, which refers to the upper sections of the Coliseum where the plebes sat and from which the anonymous blogger Herself writes about our decline and fall under Emperor Barack.

There are various entities in the Federal government that look at the financial status of the government (OBM, CBO, etc). ”Budget” is simply a prediction of future spending and receipts, and whether or not it is balanced is determined by what actually happens, not what is forecast to happen.

The Biblical-proportion deficit predictions we’ve been hearing about are based on spending targets, but more importantly, on receipt targets. If spending is more than budgeted, the deficits will be larger, but only if receipts come in as expected. If receipts are greater than expected, then the deficits will be smaller than predicted (that was the Reagan-era phenomenon). If receipts are lower than expected, then the deficit will be larger. If both are off, such as spending being more than budgeted, and receipts are less than predicted, the deficit death spiral will be enormous.

And that is exactly what is happening, at such an accelerated rate that the economy is contracting… for the first time in decades and decades.

The decline in federal tax revenues shown on the accompanying chart (courtesy of BizzyBlog (When Will the Press Catch On to Uncle Sam’s Collections Meltdown? April 22, 2009) is staggering and suggests that the economy is in much worse shape than believed and heading in the wrong direction.


Basically, what we have is a combination of unrealistically rosy economic growth projections (3.5%) coupled with a sharp 40% drop in federal tax revenues. And even with overly-optimistic projections on both scores, the government is still projecting a $1.8 trillion deficit, weighing in at 13% of GDP. (By way of comparison, the widely-criticized budget deficits under George W. Bush never exceeded 3% of GDP.)

So the good news is there’s plenty of ice for our drinks. The bad news is the band is warming up to play “Nearer my God to Thee.”

Hat tip: Sam C.


2 Responses to The Taxman Shrinketh

  1. Herself says:

    With writing as good as your last sentence, who needs other bloggers?

    Thank you for the link.

  2. Ed says:

    Thanks for the kind words and for the excellent work you’re doing on my favorite new blog.

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