Deficit Watch thru Nov 2007

I have trouble sticking with the economic optimists when results like this come in.  Although the deficit is still harmless at 1.4% GDP, rolling 12-month corporate tax receipts are not growing any more; that's the second-largest component of federal tax receipts, and makes it look as if the pessimists have a point regarding the economic slowdown they've been predicting for months. 

Here's this month's chart; click to enlarge.

If these trends keep up for another three or four months, we can safely forget about getting a balanced budget in time to eliminate deficit dogma from the fall '08 campaign rhetoric.

Comments

[Bob]

I'm doing myself a favor and taking a hiatus from the campaign(s) and all the political hot air. Plenty of time next year once the candidates are nominated.

I'm a bit burned out on all of it. I suspect a lot of people are.

If the economy slows, it slows. It doesn't mean Armageddon.

[Boghie]

My guess is that some of the large multi-nationals will be showing less profit from about March 2007 onward...

The shareholders will no longer want dividends when dividends start being taxed as ordinary income.

Then surprise!!!

Another Enron style scandal erupts after some corporate slugs play games with paper profits.

Libs…
Corporations don’t pay tax on share price – they pay tax on profits. When Bush’s evil tax code emphasized the value of dividends to shareholders two things happened. 1) Corporations adjusted their behavior to show more profit – thus increasing Corporate Income Tax revenues. And, 2) Greedy Corporate Titans could no longer game the books – dividends are paid to shareholders in cash, not in the hope stock price growth.

[Boghie]

Steve,

Don't fret. Time to buy into the stock market. Right now, I can't see the economic goobers on the Democratic ticket winning the election. When that becomes more defined than the corporate income tax revenue will mysteriously slope upward – and rather dramatically at that…

My guess is February…

[Rufus]

I seem to remember catching holy hallelujah for pointing this trend out a few months back. Oh well, don't worry guys; It's the Dems to the rescue:

By failing to pass an AMT patch the Dems are guaranteeing us another $80 Billion, or so, in revenues. It'll slow the economy even further, but if Bush can convince the people that it's the Dems fault we might get enough Pubs to pass another tax cut.

Hows that for turning lemons into lemonade? :)

[CoRev]

Steve, can you tell why expenditures went up? We are still under a continuing resolution. We are in the wrong month of the fiscal year to see larger expenditures.

It appears that something else is at work here. Last month just does not match the past trends.

[Steve]

HHS, Veterans affairs, and social security were all above trend; not enough time to investigate why, but some of it should come back next month. Unsurprisingly, military spending is rising slowly. But the bigger effect was on the revenue side: rolling-12mo corporate income tax receipts started shrinking.

We need more corporate income tax receipts. Quiz question of the day: should we (a) raise corporate tax rates to extract a higher percentage from the current payers, or (b) lower them, to get more competitive with other countries' corp tax rates, and attract more firms into our tax base?

[MarkG Fm Pa]

Recent National Economics Club podcast indicates a corporate tax rate cut is "in the cards" for 2009; even if a Dem wins.

Also, from what I can tell the Congress passed a bill to patch the AMT for 2007 but not sure if it is waiting for Bush's approval?

http://www.senate.gov/~finance/press/Bpress/2007press/prb120607b.pdf

[Grodge]

Boghie says: "I can't see the economic goobers on the Democratic ticket winning the election."

and

"...the corporate income tax revenue will mysteriously slope upward – and rather dramatically at that… My guess is February…"

In a word, delusional.

But that's what makes a market... and a democracy.

[Crashex]

What happened in June/July 2006 that would cause the distinct change in slope of both the Receipts and Outlays trends?

The current Outlays slope fairly matches the projected 2.9 $T budget discussed for 2008.

The change to minimum wage was in Spring 2007. That would increase $ to low wage earners who pay a relatively low precent tax rate, simultaneously removing that $ from the small business owners profit. The difference in the relative tax rate would thereby reduce the Receipts to the Fed Gov. Obviously, layoffs and delayed hiring would keep this from being a direct proportion. With small business known to be a large percentage of the overall economy, I would expect the overall business receipts trend to suffer because of that change.

A bigger influence is likely the fairly dramatic change to the value of the dollar, but I'm not smart enough to evaluate the pros and cons of that trend.

[ilsm]

Steve,

What happened to the "lines" crossing in Apr 08?

When you gonna pay up?

[Steve]

ilsm:
If the lines don't cross by Dec '09, I will pay up the day after the Dec '09 MTS is published.

[pgl]

ilsm - You'll need to stand in line as SO also owes Mark Kleiman on that little bet. But seriously, anyone who looks at the unified deficit and calls it harmless before he recognizes the fact that the general fund deficit is much larger (something called the Soc. Sec. surplus) should not be taken seriously when it comes to fiscal policy.

[Steve]

pgl and ilsm:

Presumably, you have real names. Do you have the courage to tell me what they are, in private emails?