WASHINGTON The recession is starving the government of tax revenue, just as the president and Congress are piling a major expansion of health care and other programs on the nation's plate and struggling to find money to pay the tab.
The numbers could hardly be more stark: Tax receipts are on pace to drop 18 percent this year, the biggest single-year decline since the Great Depression, while the federal deficit balloons to a record $1.8 trillion.
Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.
The last time the government's revenues were this bleak, the year was 1932 in the midst of the Depression.
"Our tax system is already inadequate to support the promises our government has made," said Eugene Steuerle, a former Treasury Department official in the Reagan administration who is now vice president of the Peter G. Peterson Foundation.
"This just adds to the problem."
While much of Washington is focused on how to pay for new programs such as overhauling health care at a cost of $1 trillion over the next decade existing programs are feeling the pinch, too.
Social Security is in danger of running out of money earlier than the government projected just a few month ago. Highway, mass transit and airport projects are at risk because fuel and industry taxes are declining.
The national debt already exceeds $11 trillion. And bills just completed by the House would boost domestic agencies' spending by 11 percent in 2010 and military spending by 4 percent.
For this report, the AP analyzed annual tax receipts dating back to the inception of the federal income tax in 1913. Tax receipts for the 2009 budget year were available through June. They were compared to the same period last year. The budget year runs from October to September, meaning there will be three more months of receipts this year.
Is there a way out of the financial mess?
A key factor is the economy's health. The future of current programs not to mention the new ones Obama is proposing will depend largely on how fast the economy recovers from the recession, said William Gale, co-director of the Tax Policy Center.
"The numbers for 2009 are striking, head-snapping. But what really matters is what happens next," he said. "If it's just one year, then it's a remarkable thing, but it's totally manageable. If the economy doesn't recover soon, it doesn't matter what your social, economic and political agenda is. There's not going to be any revenue to pay for it."
A small part of the drop in tax receipts can be attributed to new tax credits for individuals and corporations enacted in February as part of the $787 billion economic stimulus package. The sheer magnitude of the tax decline, however, points to the deep recession that is reducing incomes, wiping out corporate profits and straining government programs.
Social Security tax receipts are down less than a percentage point from last year, but in May the government had been projecting a slight increase. At the time, the government's best estimate was that Social Security would start to pay out more money than it receives in taxes in 2016, and that the fund would be depleted in 2037 unless changes are enacted.
Some experts think the sour economy has made those numbers outdated.
"You could easily move that number up three or four years, then you're talking about 2013, and that's not very far off," said Kent Smetters, associate professor of insurance and risk management at the University of Pennsylvania.
The government's projections included best- and worst-case scenarios. Under the worst, Social Security would start to pay out more money than it received in taxes in 2013, and the fund would be depleted in 2029.
The fund's trustees are still confident the solvency dates are within the range of the worst-case scenario, said Jason Fichtner, the Social Security Administration's acting deputy commissioner.
"We're not outside our boundaries yet," Fichtner said. "As the recovery comes, we'll see how that plays out."
The recession's toll on Social Security makes it even more urgent for Congress to address the fund's long-term solvency, said Sen. Herb Kohl, D-Wis., chairman of the Senate Aging Committee.
"Over the past year, millions of older Americans have watched their retirement savings crumble, making the guaranteed income of Social Security more important than ever," Kohl said.
President Barack Obama has said he wants to tackle Social Security next year, after he clears an already crowded agenda that includes overhauling health care, addressing climate change and imposing new regulations on financial companies.
Medicare tax receipts are also down less than a percentage point for the year, pretty close to government projections. Medicare started paying out more money than it received last year.
Meanwhile, the recession is taking a toll on fuel and industry excise taxes that pay for highway, mass transit and airport projects. Fuel taxes that support road construction and mass transit projects are on pace to fall for the second straight year. Receipts from taxes on jet fuel and airline tickets are also dropping, meaning Congress will have to borrow more money to fund airport projects and the Federal Aviation Administration.
Last week, Congress voted to spend $7 billion to replenish the highway fund, which would otherwise run out of money in August. Congress spent $8 billion to replenish the fund last year.
Rep. Richard Neal, D-Mass., chairman of the House subcommittee that oversees fuel taxes, is working on a package to make the fund more self-sufficient. The U.S. Chamber of Commerce, which doesn't back many tax increases, supports increasing the federal gasoline tax, currently 18.4 cents per gallon. Neal said he hasn't endorsed a specific plan. But, he added, "You can't keep going back to the general fund."
Perhaps soon we can gain our freedom back! Time to finally cut federal spending.
Our biggest problem will be all the czars Obama has been putting in place.
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John Adams The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.
Ronald Reagan: 'Everybody that is for abortion has already been born'
"I never said I was worth it. I only said I wouldn't do it for less " William F. Buckley Jr.
I cant understand how the stockmarket and other things are rebounding so strongly with no real sign things are getting better. What am I missing here? Im new to following finance. Is this bull market gonna collapse again faster than its rising or what? Any recovery we are having will collapse in short order the way oil prices are rising especially if they go above 85-90.
I get the feeling that one of the governments goals with health care is being the trustee of a huge pile of money. It can borrow from one kettle for whatever and keep the madness going. In the real world I think that's called cooking the books.
I get the feeling that one of the governments goals with health care is being the trustee of a huge pile of money. It can borrow from one kettle for whatever and keep the madness going. In the real world I think that's called cooking the books.
They been doing that with one pile already called social security. Now they are looking for another pile. The ironic thing to all of this is that if taxes were cut across the board, they would have a whole lot more tax revenue coming in to pay for all of their pipe dreams. A healthy, thriving private sector will always bring in more revenue to the feds than a private sector that is taxed to death and beaten down like a broken dog. They of course are operating on a completely different philosophy. Their plan to tax more to supposedly pay for their solutions for all our problems will only give them less money to work with.
We are witnessing the opposite of supply side economics. It not only trickles down, but sideways, and comes back to the government twofold. Usually what happens though, is the government can't keep from spending it.
C. Davis
__________________ Am I greedy because I don't want to give you what is mine?
or
Are you greedy because you want to take what is not yours?
I cant understand how the stockmarket and other things are rebounding so strongly with no real sign things are getting better. What am I missing here?
DD, whats going on is the rise of the stock market is inversely tied to the fall of Obama's clout. The more he falls the less influence he can have to get anti-business laws inacted.
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John Adams The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.
Ronald Reagan: 'Everybody that is for abortion has already been born'
"I never said I was worth it. I only said I wouldn't do it for less " William F. Buckley Jr.
What Obama would like is to take 100% of everyones income ...keep what they think they need then give us what they think is fair. Just devide whats left so everyone has a slice of the pie. This is the perfect Obama world.
A country without an economy has a heck of a time recovering from a recession/depression. We have no manufacturing base. Our political pukes sold the US economy to China for political contributions.
That big sounder of political hogs in the DC capitol broke into the granary, ate all the grain and are now fighting over a few grains in the crap piles. The budget deficit this year will be about 2 trillion dollars. This does not include all the new math accounting, the shenanigans of the federal reserve and the bailouts. We are in big trouble.
BS, we have been increasing our manufacturing output by close to 4% for 6 decades. That's higher than our GDP growth over that same time. Our deficits are caused by the government welfare programs including SS and medicare. The train wreck has been predicted and it's here now. Time to pay the piper.
__________________
John Adams The moment the idea is admitted into society that property is not as sacred as the laws of God, and that there is not a force of law and public justice to protect it, anarchy and tyranny commence.
Ronald Reagan: 'Everybody that is for abortion has already been born'
"I never said I was worth it. I only said I wouldn't do it for less " William F. Buckley Jr.
AP ENTERPRISE: Biggest revenue drop since 1932
