Have you seen this incredible story about US taxation ?
bendien at tomaatnet.nl
Sat Jul 26 04:09:59 MDT 2003
(Crossposted from PEN-L)
The Amazing Disappearing Tax Revenue
Officials, Economists Ponder Whereabouts
By Jonathan Weisman
Washington Post Staff Writer
Saturday, July 26, 2003; Page E01
The exploding federal budget deficit has triggered fierce recriminations
among politicians over who is to blame, but in Washington's less-partisan
budget circles, the White House's projected $455 billion deficit for 2003
has underscored a growing mystery: Where has all the tax revenue gone?
"No one knows," said Douglas Holtz-Eakin, the director of the nonpartisan
Congressional Budget Office. "Not answering the question is just admitting
Washington's tax take has fallen for three straight years, a phenomenon
not seen since the Great Depression. But unlike then, the economy is
actually growing, albeit slowly. As of June 30, the first nine months of
this fiscal year, individual income tax receipts have fallen to $605
billion, down $39 billion from the comparable period last year, the
Treasury Department said Wednesday. Corporate income taxes slid to $98
billion from $116 billion.
A sluggish economy and tax cuts certainly bear much of the responsibility,
budget experts say. But neither factor can completely explain the $269
billion slide in tax receipts since 2000.
"The fact is, CBO, [the White House,] Treasury don't know what's happening
right now, other than we're getting less revenue," said Dan L. Crippen, a
recently retired Congressional Budget Office director. "It's kind of a sad
state of affairs."
As the stock market bubble burst and the economy slipped into recession in
2001, the first budget adjustments were straightforward. White House and
congressional budget economists lowered projections of income tax revenue
and sharply reduce expectations on capital gains taxes from the sale of
In January 2001, the CBO forecast that capital gains tax receipts this
year would reach $119 billion. By January 2003, that forecast had been
knocked down to $51 billion -- below 1996's level. Predictions of
individual income tax receipts for 2003 fell this year to $899 billion
from 2001's estimate of $1.18 trillion.
With the passage of each of three tax cuts since 2001, budget forecasters
reduced tax revenue forecasts. For this fiscal year's projection, the
White House even arbitrarily knocked off $25 billion from expected tax
revenue just in case.
But even after those adjustments were made, tax revenue has continued to
fall well below expectations. Last week's forecast by the White House
determined that tax receipts for 2003 would be $80 billion lower than
anticipated just six months ago. For fiscal 2004, estimated receipts were
adjusted downward by nearly $125 billion. At a loss, White House
economists lopped off another $15 billion from their 2003 tax receipt
forecast and $30 billion from their 2004 projection.
Economists say the problem is a data lag: It takes the Internal Revenue
Service two years to itemize its massive tax take into separate taxation
categories. The CBO just got its hands on the IRS's detailed tax data from
2001. In the absence of a precise breakdown, forecasters simply watch four
large categories as they flow in: corporate taxes, individual income taxes
withheld by employers, individual income taxes mailed in as estimated tax
payments and end-of-the-year payments, and payroll taxes for Social
Security and Medicare.
They watch those large piles of money in the context of broad economic
trends, watch for abnormalities, such as corporate taxes falling behind
corporate profits, then try to divine the future.
A White House economist, speaking on condition of anonymity, pointed to
two large pots of money that remain strangely depleted: corporate taxes
and non-withheld income taxes, those tax checks individuals send in as
estimated payments or with their tax returns. That is only a clue, the
"We can pinpoint the location of the error, but we can't say the cause,"
Budget experts have hunches, and they continue to think the stock market
is the culprit.
Robert D. Reischauer, a former CBO director now at the Urban Institute,
said income tax receipts in the late 1990s were probably inflated by huge
bonuses, sales commissions and the redemption of stock options, all of
which depended in part on swollen stock prices.
Unlike capital gains taxes, those windfalls are reported as ordinary
income, not a separate line item in tax data. Determining just how much of
the tax take of 2000 came from bonuses and stock options is next to
impossible, and so is backing those factors out of current projections.
But they do tend to come to the Treasury as non-withheld income taxes.
Likewise, past capital losses and other adverse impacts of the 2001 bust
may still be depleting tax takes, because they can be used to offset
current taxation. That could be depleting corporate taxes.
Reischauer provided his own example. After the bust, he continued paying
his estimated quarterly taxes at basically the rate he had paying during
the boom, ultimately overpaying taxes for two years. When the IRS asked if
he wanted a refund, he opted to credit the overpayment to this year's
"OMB and CBO have no idea what is attributable to taxpayers like me,"
Reischauer said. "I'm not terribly critical about what the administration
has put out," added Reischauer, who is a Democrat.
Crippen also suggested that rising health care costs are causing
corporations to shift some taxable wages to untaxed health benefits.
But how to quantify any of this for the purpose of a budget projection is
simply unknowable, budget experts say.
"Federal budget forecasts are only good until lunch tomorrow," said Stan
E. Collender, a federal budget expert at Fleishman-Hillard Inc. "Anything
after that is just a guess."
The White House economist made no apologies for missing revenue targets,
nor did other independent economists. After all, they noted, the
administration's projections have been no more wrong than the forecasts of
CBO or private-sector economists.
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