Tuesday, March 13, 2012

US Federal Tax Receipts

There was some puzzling and disappointing news on tax receipts in yesterday’s Monthly Treasury Statement of Receipts and Outlays for February. Until recently, there was plenty of good news in individual income tax receipts as the 12-month sum rebounded from a low of $847 billion during January 2010 to $1,113 billion during November 2011. It has stalled since then as the sum edged lower to $1,094 billion during February. That certainly doesn’t jibe with the significant improvement in employment in recent months that I discussed yesterday.

On the other hand, the 12-month sum of total payroll tax receipts turned up in December for the first time since the fall of 2008, edging up to $815 billion in February. Debbie and I believe that the recent strength in payroll employment is sustainable and should soon be confirmed not only by payroll tax receipts but also by individual income tax revenues, which tend to be a lagging economic indicator.

Of course, a more troubling issue than the recent slowing in individual tax receipts is that total tax receipts covered just 65% of total outlays over the past 12 months through February. That’s up from a record low of 58% during February 2010. But, come on, that’s really pathetic. This is exactly the sort of fiscal recklessness that is now forcing Greece and other European social welfare states to adopt painful fiscal austerity measures, which more accurately should be called “fiscal sanity measures.”

In a 3/5 speech, Dallas Fed chief Richard Fisher compared the fiscal recklessness in the US to the discipline in Mexico as follows: “I was in Mexico last week. Mexico has many problems, not the least of which is declining oil production, low school graduation rates and drug-induced violence….Now hold on to your seats: Mexico actually has a federal budget! We haven’t had one for almost three years.

“Furthermore, the Mexican Congress has imposed a balanced-budget rule and the discipline to go with it, so that even with the deviation from balance allowed under emergencies, Mexico ran a budget deficit of only 2.5 percent in 2011, compared with 8.7 percent in the U.S. Mexico’s national debt totals 27 percent of GDP; in the U.S., the debt-to-GDP ratio computed on a comparable basis was 99 percent in 2011 and is projected to be 106 percent in 2012. Imagine that: The country that many Americans look down upon and consider ‘undeveloped’ is now more fiscally responsible and is growing faster than the United States. What does that say about the fiscal rectitude of the U.S. Congress?” (More for subscribers.)

No comments: