What Happened to Government Revenue?
In all the talk about the debt crisis and how to fix it there has been a lot of debate over increasing revenue, which led me to research (rather cursorily, I admit) what has happened to revenue since the economy started to falter in 2007. Looking at this site, I see that in 2007 GDP was about 14 trillion dollars and federal revenue was close to 5.2 trillion dollars. Last year GDP was almost 14.7 trillion dollars, more than in 2007, but federal revenues were only 4.2 trillion dollars. So GDP is slightly higher than it was three years earlier, but federal revenues dropped almost 20%. What the heck is going on there? Where is the shortfall in revenue coming from since tax rates have stayed the same and the economy is producing more than it did before?
UPDATE: Thanks to Mark Belling Fan for correcting my numbers. This is the link I should have used above and the numbers I should have cited for federal revenues for 2007 should have been almost 2.6 trillion dollars, and almost 2.2 trillion dollars in revenue for 2010. The drop in revenue was almost 16%.
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Mar '11
Re: What Happened to Government Revenue?
The issue here is the "jobless recovery". Companies have increased their efficiency so profits can recover and the GDP can grow. However without the jobs, federal revenues do not go up.
Remember even the "poor" who pay basically no personal income tax still pay the payroll tax that creates revenue for the government. Even with identical tax rates there are fewer tax payers.
Sep '10
Re: What Happened to Government Revenue?
The actual numbers are available at the White House OMB website (here).
Year: Revenue / GDP (%)
2007: $2.568 / $13.892 (18.5%)
2008: $2.524 / $14.394 (17.5%)
2009: $2.105 / $14.098 (14.9%)
2010: $2.163 / $14.508 (14.9%)
Is it possible the Evil Darth Cheney snuck in some more evil tax cuts for the rich with the TARP bill?
Sep '10
Re: What Happened to Government Revenue?
Seems like the most logical explanation.
If we tax corporate jets, will that create more tax payers?
Jan '11
Re: What Happened to Government Revenue?
Okay, that explains a lot of it, but wouldn't corporate taxes fill more of the hole in revenue made by receiving less individual income tax revenues? The decline in payroll taxes certainly would account for a lot, but it doesn't seem it should add up to 20% of total revenues. Or does it?
Edited on Jul 26, 2011 at 10:08amMar '11
Re: What Happened to Government Revenue?
An additional issue is the Oboma stimulus plans. Specifically the Make Work Pay refundable tax credit. This actually was a change in the tax rates as it provided a small tax decrease to basically everyone who had a job.
I believe that since this was refundable, that means that if you owe no taxes on your income you would then receive the $400 as a tax refund at the end of the year.
Mar '11
Re: What Happened to Government Revenue?
With regard to Corporate taxes again you have to look at employment. Profits are up somewhat and GDP grew a small amount across the whole country. That does not necessarily mean a big payment increase on any individual business.
Further employers pay payroll taxes as well. Less employees means less payroll tax.
Of course this subject is complicated by companies like GE that thanks to tax credits not only paid no taxes on their profits but got a tax refund. This allows for increasing GDP with no increasing tax revenue
Mar '11
Re: What Happened to Government Revenue?
Mark Belling Fan
Seems like the most logical explanation.
If we tax corporate jets, will that create more tax payers? · Jul 26 at 10:02am
If it works like the Yacht tax in the past this will create less tax revenue and more unemployment
Sep '10
Re: What Happened to Government Revenue?
Revenues by source: 2007 vs. 2010
Income Tax: $1.163 vs. $0.899
Corporate Tax: $0.370 vs. $0.191
Payroll Tax: $0.870 vs. $0.865
Excise Taxes: $0.065 vs. $0.067
Other Taxes: $0.100 vs. $0.141
It appears that corporate tax revenues fell off a cliff (along with income tax revenues) after the financial crisis.
Link
Jan '11
Re: What Happened to Government Revenue?
Thanks for those links, Mark. My original link included state and local revenues. I don't understand what happened to corporate taxes. I'm guessing that comes from some temporary tax breaks for corporations from hiring incentives, etc.
Jan '11
Re: What Happened to Government Revenue?
Of course this subject is complicated by companies like GE that thanks to tax credits not only paid no taxes on their profits but got a tax refund. This allows for increasing GDP with no increasing tax revenue · Jul 26 at 10:15am
Interesting. What a mess.
Edited on Jul 26, 2011 at 11:39amMar '11
Re: What Happened to Government Revenue?
Another issue is how GDP is computed. Consumer spending and government spending have some effect on GDP.
While not the panacea progressive state, government spending does have upward pressure on GDP. This does not necessarily correspond to increased government revenue from this spending.
Consumer Spending portion of GDP is effected by Unemployment Benefits and food stamps. These government benefits stabilize consumer demand (as compared to having the same level of unemployment but the unemployed having no money to spend at all). This helps to allow some growth in GDP while the money itself is government provided and does not supply the same revenues.
Oct '10
Re: What Happened to Government Revenue?
Short-term tax stimulus and the recession is why revenue is so low.
Sep '10
Re: What Happened to Government Revenue?
What do you mean by "short term tax stimulus"? And can you help explain why corporate tax revenues are down roughly 50 percent when all I hear in the media is that corporate profits are up?
Mar '11
Re: What Happened to Government Revenue?
When corporation report their income (what the stock market looks at) they are reporting domestic and foreign income. Most of the increased corporate profits are over seas. They pay taxes on that income in the country where the income is generated. Since they would have to pay additional high taxes on the funds to repatriate that money to the US they simply don't bring in back.
If a company made $1million dollars and paid 30% tax on this in a foreign country they would have $700,000 left. They then would have to pay the corporate tax rate in the US if the money was brought back to the US, instead of paying this tax companies leave their profits overseas and thus new investments are over seas.
Apr '11
Re: What Happened to Government Revenue?
If you look at the revenue rate from 1960 to 2010 you will notice that for every decade on that chart the government revenue doubles every 10 years. In 1960 total revenue was 100B$, in 1970 200B$, 1980 400B$, 1990 is 1000B$, and 2000 is 2000B$, but in 2010 it is 2200B$. It is a very bad trend. It means that for some reason government revenue has failed to follow the historical trend. I pointed this out in a post I started earlier in the day.
You can see very clearly in the 2000s when the 2001 and 2008 recessions hit, because the revenue drops. But you don't see similar revenue drops in 1980 or in 1990 for those recessions. So what gives? Why were government revenues so much more robust then, but not now. Also if this trend continues we will have serious problems. We could not keep out of debt when government revenues were doubling every two years, we sure won't when they have flat lined.
Oct '10
Re: What Happened to Government Revenue?
The Bush administration and Obama enacted tons of them. The "Making work pay" tax credit, business investment tax credits, R&D tax credits, the $150 billion payroll tax cut this year, etc. It adds up to at least $500 billion since 2008. The stimulus itself had bunches of them (mostly transfer payments, which had little effect of GDP, as supply-side theory predicts).
Most of the tax breaks were badly designed or special interest handouts. Even the payroll tax cut was botched; Congress should have cut the employer side, not the employee's. Many of these policies only work if you have a trade surplus, and of course we have a trade deficit; it's like pushing on a fiscal string (plus fiscal policy doesn't do much under flexible exchange rates). Cutting the employer side of payroll taxes would at least have had the effect of lowering labor costs, boosting employment, and boosting exports.
Oct '10
Re: What Happened to Government Revenue?
Valiuth: If you look at the revenue rate from 1960 to 2010 you will notice that for every decade on that chart the government revenue doubles every 10 years. In 1960 total revenue was 100B$, in 1970 200B$, 1980 400B$, 1990 is 1000B$, and 2000 is 2000B$, but in 2010 it is 2200B$. It is a very bad trend. It means that for some reason government revenue has failed to follow the historical trend. I pointed this out in a post I started earlier in the day.
You can see very clearly in the 2000s when the 2001 and 2008 recessions hit, because the revenue drops. But you don't see similar revenue drops in 1980 or in 1990 for those recessions. So what gives? Why were government revenues so much more robust then, but not now. Also if this trend continues we will have serious problems.
Well, what matters is revenue as a percentage of GDP. Conservatives want to take 18-19% of the economy in federal revenue, while liberals generally want 21-25%. I'm confident we can reach that target easily enough as the economy recovers.
Apr '11
Re: What Happened to Government Revenue?
Joseph:
My point is that if you are roughly taking 20% give or take of all GDP every year, and you used to be doubling your net revenue every 10 years that must mean that your GDP was also doubling every 10 years. Right?
(Tax)(GDP)=(Total Revenue)
.2x100=20 so .2x=40 this must mean that x=200
I've tried to see if this is true but my cursory google search availed me not, perhaps some one can tell me if GDP has been doubling at the rate of once every 10 years over the last 40 odd years. If it has, has it doubled from 2000 to 2010? I think I know the answer to that, no.
So my question is what is going on that 2000-2010 should be so much worse for the government then 1990-2000, 1980-1990, 1970-1980...? Is it just the current recession? Why do the last two downturns show up so strongly in government revenues but previous ones don't?
I need to stress I have only noticed these things today, and am frankly shocked by them. If the US government was a company I would be worried.
Oct '10
Re: What Happened to Government Revenue?
Isn’t the primary cause of a decrease in government revenue the result of lackluster business activity? Didn’t the passage of Obamacare keep small businesses from expanding that could have expanded because on the uncertainty of what their health costs would be? And hasn’t the administration’s anti-business rhetoric, redistributionist policies, one-sided support of unions and onerous regulations made companies uncertain of what their return on capital would be if they invested in the US economy? As Steve Wynn recently said, “this administration has thrown a wet blanket over the entire economy”. Unfortunately, I can’t see how things will improve until we have a new president.
Sep '10
Re: What Happened to Government Revenue?
Taxes and spending as a percent of GDP are misleading statistics at best. GDP is the sum of consumer spending, private sector capital investment, net exports and government spending. GDP minus government spending decreased almost in the same proportion as revenue did. The figures during this slow down tracked those of previous slowdowns. When you see someone using % of GDP figures it is a good rule of thumb to assume they are trying to mislead or obfuscate not explain. This is not always the case, but as with your example seldom can they be taken at face value without further analyzing.