Tuesday, June 07, 2005

Budget Facts

Yesterday the CBO issued the latest data about federal budget progress for FY 2005. Tax receipts continue to outpace last year’s receipts through May by more than 15 percent. Corporate tax collections were up the most at 47.5 percent. (Before you start writing your Congressperson for more pork in your district, you should realize that corporate taxes provide only about a tenth of the total tax revenues. Nevertheless, this is probably a good sign that corporate profits were made, and that such profits were of a sufficiently real variety to generate a tax obligation.) Individual tax collections were up 20 percent, and social security collections were up 6.4 percent.

On the outlay side, the figures through May 2005 were up 7.5 percent above that of the prior year. With taxes up by more than spending, we are moving in the right direction. However, we are a long ways from balancing spending and receipts. The CBO still predicts a budget deficit in the $350 billion plus range.

See Monthly Budget Review (June 6, 2005) at http://www.cbo.gov/showdoc.cfm?index=6407&sequence=0

When one looks at the aggregate spending, it appears to have grown substantially during the Bush administration. Fiscal 2005 expected spending is $2,422 billion, which is about 30 percent higher than the 2001 figure of $1,863 billion. Although the Iraq war and other elements of the war on terrorism undoubtedly increased defense expenditures ($300 billion in 2001 vs. 454 billion in 2004 - I don't have the 2005 figure), this does not explain all the difference. This $154 billion difference (2004-2001) appears to be less than 1/3 of the total increase in spending during the period. We thus bought lots of other things with all of that government money. (Oops, I mean our money.)

Tax receipts, on the other hand, have grown from $1,991 billion in 2001 to $2,057 in 2005, an increase of about 3 percent. However, this occurred despite significant tax rate cuts enacted in 2001. (Cutting tax rates to generate more revenues -- hmm -- perhaps we need more of this?)

In comparison to the total economy (measured by GDP), these staggering numbers don’t seem so large. Using 2004 data (the most recent available), the tax receipts as a percentage of GDP are at 16.3 percent, a decline from the 19.8 percent levels of 2001. No lower percentage appears since 1962 (the earliest year on the table I’m referring to, located here: http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0#table1 ). That suggests government is really taking a smaller bite out of the economy in the form of taxes.

On the spending side, however, the 2001 outlays were 18.5 percent of GDP, which increased to 19.8 percent by 2004. This means that government spending is growing in relation to the economy, though it has a ways to go to reach the lower twenties, which we saw as recently as the early part of the 1990s. The highest percentage since 1962 occurred in 1983, at 23.5 percent. Assuming estimated 2005 GDP of $12,396 billion (per the CBO estimate, see http://www.cbo.gov/showdoc.cfm?index=1824&sequence=0 ), spending would have to be reduced to 16.6 percent of GDP to balance the budget.


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