A Potential Monkey Wrench in the Theory of the Four-Yaar Presidential Cycle
A Surprised $100 billion Shortfall in Projected U.S. Budget Deficit
Full Story: nytimes.com
An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected U.S. budget
deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.
On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year's levels and that the deficit will be about $100 billion less than what they projected six months ago. The rising tide in tax payments has been building for months, but the increased scale is surprising even seasoned budget analysts and making it easier for both the administration and Congress to finesse the big run-up in spending over the past year.
Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could
actually decline this year.
The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big increase in individual taxes on stock market profits and executive bonuses.
On Friday, the Congressional Budget Office reported that corporate tax receipts for the nine months ending in June hit $250 billion — nearly 26 percent higher than the same time last year — and that overall revenues were $206 billion higher than at this point in 2005.
Congressional analysts say the surprise windfall could shrink the deficit this year to $300 billion, from $318 billion in
2005 and an all-time high of $412 billion in 2004.
At the beginning of the year, the Congressional Budget Office projected that this year's deficit would be $371 billion and
the White House Office of Management and Budget put the figure at $423 billion.
Corporate tax payments are expected to exceed $300 billion, up from $131 billion three years ago. The other big increase is an extraordinary jump in individual taxes that were not withheld from paychecks, usually a reflection of taxes on investment income and executive bonuses.
Both supporters and critics of Mr. Bush cautioned against attributing much long-term significance to the recent fiscal
improvement, in part because tax revenues have become more volatile.
In the late 1990's, revenues exceeded predictions by more than $100 billion a year. After the recession of 2001, revenues plunged about $100 billion below what could be explained by slower economic growth and higher unemployment.
One reason for the increased volatility may be that, contrary to a popular assumption, a disproportionate share of income
taxes is paid by wealthy households, and their incomes are based much more on the swings of the stock market than on wages and salaries. About one-third of all income taxes are paid by households in the top 1 percent of income earners, who make more than about $300,000 a year. Because those households also earn the overwhelming share of taxable investment income and executive bonuses, both their incomes and their tax liabilities swing sharply in bull and bear markets.
Spending has not been restrained. One hundred percent of the reduced deficit is because taxpayers are sending more money to Washington.
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