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Recession starving US govt of tax revenue

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 programmes 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% 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% from a year ago. Corporate income taxes are down 57%. 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.

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 programmes 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% in 2010 and military spending by 4%. For this report, the AP analysed 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.

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.

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. 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. ap

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