Budget: The Revenue That Was Never There

The Treasury said that the federal budget deficit in May was almost $190 billion bringing the total for the government’s fiscal year to $992 billion. The government keeps its calendar running from September to September for reasons that are not clear to anyone.

The first reaction to the news was that the government’s red ink for the year will exceed the forecast of $1.84 trillion. The smart money focused on the revenue shortfall. Tax receipts through May were less than $1.67 trillion, 18% lower than they were for the same period a year ago. Even relatively naïve observers of the federal government’s financial difficulties understand the Congress and the Administration may be able to hold expenses to the level planned. Income is another matter. With corporate profits dropping and in many cases turning into losses, tax revenue from businesses will continue to drop. Unemployment and the drop in the average number of hours worked by Americans each month will insure that the tax income from individuals will keep dropping as well.

The fear among financiers and intelligent government servants is that the deficit has already reached a point of no return. Spending is set on a course that the Administration and Congress refuse to reverse. Receipts are not only dropping, they are dropping quickly and are not likely to recover for the next year. GDP growth may look good on paper, but employment is what pays the government’s rent.

Interest rates have already told the Treasury that the world knows it is borrowing too much money. It is odd that there is so little fear in the air in Washington. Congress may go home for the summer recess and return to the Capitol to find that a fiscal emergency has arisen that will require it to find a large number of cost cuts to keep China buying Treasuries.

The only other real alternative that Congress will have to solve its problem is to levy a one-time tax on businesses and individuals. Usually taxation takes its toll on business and consumer spending over many years. The US government may find that the rate it has to pay to borrow capital has become so high that it has to turn to its citizens for the equivalent of a bailout.

Hitting taxpayers with one large bill may actually make some sense. There are some Americans who cannot afford a few hundred extra dollars being paid to the government this year. Most citizens will do what they have always done. They will buy war bonds, agree to be drafted, take in strangers, run their cars on tires that are bald, and pass the hat for the family whose kid is in the hospital.

The government may inadvertently be killing the American dream of prosperity by burying its citizens under a mound of taxes just as they have reached the point when they know a growing number of neighbors and family members who are out of work. It is convenient for Congress to ask those people for more money instead of chopping programs that are not essential. But, American citizens will be asked and, with few exceptions, they will write the check the way that they have always done in the past.

Douglas A. McIntyre