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Surge in Tax Revenue Cuts
Federal-Deficit Projections
By JACKIE CALMES
May 5, 2006; Page A2
WASHINGTON -- A surge in federal tax revenue, mainly in payments from rich Americans, is driving down government and private-sector projections of this year's federal deficit to as low as $300 billion, well below current forecasts that are near or over $400 billion.
The Congressional Budget Office "now expects that the 2006 deficit will be significantly less than $350 billion, perhaps as low as $300 billion," it said yesterday in a monthly budget report that reflected April's tax-time receipts. The CBO previously projected a deficit for this fiscal year, which ends Sept. 30, of $371 billion. The Bush administration's Office of Management and Budget, which had forecast a $423 billion shortfall, also will be reducing its estimate, government analysts say.
The fiscal revisions, reflecting the economy's higher-than-expected growth, suggest a 2006 deficit coming in closer to last year's $318 billion, or even below it. That would be good news for President Bush and the Republican-led Congress. Preliminary reports of lower deficit numbers were being hailed in emails among Capitol Hill offices. But the brighter short-term outlook doesn't change long-run forecasts of unsustainable deficits as more Americans age and draw Medicare, Medicaid and Social Security benefits.
In its annual long-term outlook in January, the CBO wrote that spending for those programs "will exert pressures on the budget that economic growth alone is unlikely to alleviate. A substantial reduction in the growth of spending and perhaps a sizable increase in taxes as a share of the economy will be necessary for fiscal stability to be at all likely in the coming decades."
The data indicate the gains from a strong economy are going largely to those at the top of the income scale. The revenue growth stems from nonwithheld taxes -- not federal taxes automatically withheld from most workers' paychecks. Nonwithheld tax payments mostly come from wealthy taxpayers with income from stocks, bonuses and other sources from which federal taxes aren't immediately withheld.
Private-sector analysts, tracking the same monthly Treasury tax-collection data as government analysts, have been making similar revisions. J.P. Morgan Chase Bank, in an economic update yesterday, reduced its deficit forecast to $325 billion from $370 billion. It also cited a surge in nonwithheld tax payments with the April 15 income-tax filing deadline.
"Much of the revision appears to be concentrated in income from the exercise of stock options," J.P. Morgan analyst Robert Mellman wrote in an investors note. He said a similar but smaller surge occurred a year ago at tax-filing time in April.
The approximately $736,274,000,000 in individual income taxes that the Treasury collected in October through March of this fiscal year was $24,473,780,000 more than the $711,800,220,000 (in constant March 2018 dollars) that the Treasury collected in the first six months of fiscal 2017. While the federal government was collecting record individual income taxes in the first half of this fiscal year, both payroll taxes and corporate income taxes declined compared to last year.
In October through March of fiscal 2018, the federal government collected approximately $560,407,000,000 in Social Security and other payroll taxes. That was $3,210,000 less than the approximately $560,410,000,000 (in constant March 2018 dollars) that the federal government collected in Social Security and other payroll taxes in October through March of fiscal 2017. In October through March of fiscal 2018, the federal government also collected approximately $78,607,000,000 in corporation income taxes. That was $23,992,230,000 less than the approximately $102,599,230,000 that the federal government collected in corporation income taxes (in constant March 2018 dollars) in October through March of fiscal 2017.
With the $23,992,230,000 cut in corporation income tax revenues between last fiscal year and this fiscal year, the federal government’s overall tax haul in the first six months of this fiscal year declined compared to last year—even while individual income tax payments were increasing. In the first six months of fiscal 2017, the Treasury collected $1,507,935,630,000 in total taxes (in constant March 2018 dollars. In the first six months of fiscal 2018, it has collected $1,497,005,000,000.
While taking in those $1,497,005,000,000 in tax dollars, the federal government spent $2,096,713,000,000, thus running a deficit of $599,708,000,000 for the first six months of the fiscal year. That is $60,419,720,000 more than the $539,288,280,000 deficit (in constant March 2018 dollars) that the federal government ran in the first six months of fiscal 2017.
Feds Collect Record Individual Income Taxes Through March; Still Run $599.7B Deficit
