There are various entities in the Federal government that look at the financial status of the government (OBM, CBO, etc). ”Budget” is simply a prediction of future spending and receipts, and whether or not it is balanced is determined by what actually happens, not what is forecast to happen.
The Biblical-proportion deficit predictions we’ve been hearing about are based on spending targets, but more importantly, on receipt targets. If spending is more than budgeted, the deficits will be larger, but only if receipts come in as expected. If receipts are greater than expected, then the deficits will be smaller than predicted (that was the Reagan-era phenomenon). If receipts are lower than expected, then the deficit will be larger. If both are off, such as spending being more than budgeted, and receipts are less than predicted, the deficit death spiral will be enormous.
And that is exactly what is happening, at such an accelerated rate that the economy is contracting… for the first time in decades and decades.
In September 2008, many people saw the writing on the wall, and began preparing for a Democratic-controlled Congress and a Democrat in the Oval Office. Unlike the Carter dormancy period (the months leading up to his win and the months before he took the Oath of Office), business had no experience with which to forecast how a Democratic Congress and President would behave. This time, we knew.
In those months before Carter took office, it was as if no one could see that the train wreck was about to happen, but this time, especially since Obama’s Chicago-style ideology was clear to anyone who’d read more than one book in their lives, businesses (and individuals) had a warning of the future train wreck.
Business began shedding workers immediately, and moving their investments/cash in preparation. The only thing that has been surprising is how quickly the train wreck occurred, and how large the death toll.
This was a much bigger train, and the conductor wasn’t simply asleep at the wheel, he was purposely running the engine at full throttle.
Measuring the Galt Effect
Going Galt is one way that individuals and business owners can signal their disapproval of the Federal government’s handling of the economy, and their ideas for programs/spending. For many, however, Going Galt has not been an ideological choice, but a choice imposed on them. Anecdotally, we can read the horror stories from people who are unemployed, or business owners who have seen their business receipts drop off the cliff, forcing them into a Galt-state. But these are only anecdotes and don’t present an accurate picture of just how Galt the economy has become.
What we can do is look at Federal receipts. That is not anecdotal, but a dipstick measurement of how much money the Feds are taking in, which is about as accurate a measurement of the Galt-by-Choice or Galt-by-Fiat we have:
Source: BizzyBlog (When Will the Press Catch On to Uncle Sam’s Collections Meltdown? April 22, 2009).
I linked to a similar graphic from BizzyBlog before, but the March and April data were not shown. What the table proves is that receipts have fallen off a cliff, and with it, the accuracy of the previous deficit predictions. What raw numbers don’t illustrate is just how severe the drop is. Here is that same percentage data shown in a line graph:
Comparing 2007-2008 to 2008-2009 we can see that the collections (although currently lower) were trending about the same until April, when the trend-down in receipts collection went on full throttle:
May is not expected to be any better.
There are a thousand reasons why Federal receipts are down, but the one that is most interesting is the attitude towards government effect. Our attitude about how our government is doing can be good or bad, depending on how we side on the issues. If we feel that government is doing a good job, we’re more likely to prepare our tax returns and calculate our withholding based on an optimistic outcome (taking fewer risks). The reverse is also true: when we believe that the government is doing a bad job or mishandling our tax dollars, we will take riskier deductions on our tax return, as well as calculate our withholding in such a way as to prepare for a bad financial year (to hold back as much cash as possible), or with the intent to starve/punish the beast.
Whether intentional or not, the beast is being starved. If the Federal receipts continue to hemorrhage, the deficit predictions will be wildly understated. Unlike you and me, where we would reduce our spending in the face of lower receipts, the government, especially this government, will do no such thing.
Based on this alarming trend, one would expect the OMB and CDO to revise their deficit predictions and for the press to report on it with all the vigor of Chicken Little.
Don’t hold your breath waiting for that to happen.
Update: Welcome Dr. Helen and Instapundit readers! (Thank you Dr. Smith and Mr. Reynolds .) Oh, and a Freeper link, too. This should get interesting.
Filed under: Politics
[...] HEMORRHAGING FEDERAL RECEIPTS: Is there a “Galt effect?” [...]
Cause and effect has no place in the dreamy world of liberalism. Fiat rule suffices.
Make it so!…Why aren’t they making it so?
“How bad?”
“Mr. President, there is further deterioration in the figures coming
from Treasury. The volume of extension forms filed in place of 1040s
has exceeded worst-case. IRS scans are in. Thirty-seven percent of
taxpayers receipted through Thursday filed Form 4868 applications
instead of 1040s. What’s critical is that twenty-two percent of those
extensions were not filed with the required check. Looks like they
might not pay. The rest of those 4868s are nuisance-filed in place of
1040s. The depth of this move is off the board. The tea-bag boys
have done it this time.”
“What about the denial clause? Can’t we use that?”
“The system’s jammed. The 4868 form reads ‘automatic extension’; the
denial clause requires the IRS to notify.”
“Jesus Christ Almighty. A public appeal? Can we call a time out,
talk it back on-line? Goddamn it all, one-third of the people are
getting a goddamned government check. Don’t the assholes realize what
could happen?”
“A lot of taxpayers don’t get that check. They just lit up; all it
took was coordination. That was the danger pointed out in ‘90 by
Rintell in the Orange Day paper. He saw the problem in focusing the
entire population on the fifteenth of April; wanted to segment the
system them. It looks like he was right.”
“Why didn’t they dump that 4868? Stagger the filing dates? What in
hell do we have contingency people for?”
“Our problem is up front, sir.”
“I didn’t get here by not being able to listen. Are we reading this
right? Be straight with me; gut feeling.”
“I believe so, sir. The commission is correct. It’s a critical tax
revolt It’s past words.”
“I want to see that Rintell paper again.”
“I’ll have a copy sent over from the tank. Anything else, Mr. President?”
“No. Thank you.”
“Sir.”
“Good-bye, Link.”
In railroad parlance, FedGov receipts and expenditures are going to be a cornfield meet. Recent 30 year T-bill sales already show this.
Cayman Islands Banker, paraphrased a bit:
“Well Obama can stop money flowing into my bank from the US, but this also means that money flowing from my bank into the US is going to be greatly reduced.”
you are talking abotu income tax receipts right? Part of that is coming from people losing their employment but obviously not all… it would be interesting to see th numbers broken out for this.
The upside of the downside: starve that damned beast, baby!
My sentiments exactly, Egoist.
Is it possible to disentangle the John Galt effect from the slope of the income tax rate?
In a “progressive” tax system, a dollar of lost income from a higher income taxpayer has a greater effect upon total tax revenues than does the same dollar of lost income from a taxpayer with lower income. Indeed, at some level of income, a dollar of income lost has a negative income tax revenue effect in that the person may become eligible for EITC and other refundable tax credits.
A drop in revenue for many (most?) small businesses results in a greater percentage drop in the owner’s income. Profit is, after all, that which is left after paying expenses and many expenses are static at least in the short term, such as rent. And even variable expenses such as wages may be slower to drop because the business owner will wish to prepare for the expected (at least one hopes) economic recovery.
I am not suggesting the John Galt effect is not real, but I would like to see an attempt at quantifying it.
Jack
As I said, Mr. Smith, the data doesn’t tell us how much of the Galt effect is an ideological choice or imposed by economic catastrophe, but for many who are going under or suffering, throwing in the towel on filing and paying taxes is one way to make ends meet, when the business profits cupboard is bare.
The way to make criminals out of normally honest/law-abiding taxpayers is to increase taxes when things are tough. If for no other reason than kindness, taxes should have been lowered. At minimum, it would have kept the public sympathetic and feeling as if the government was our benevolent ally, not the enemy, fighting over our declining resources. For people who find themselves in that predicament, they’re terrified. People who are cornered like that strike back in interesting ways.
Shared sacrifice to the government means the taxpayers do the sacrificing and the government employees share in the rewards.
I’m retired and run a small home-based business making electronic kits for fellow ham radio operators. That income is down, as is my retirement income from interest and dividends. And, last year’s estimated tax payments were based on what I thought 2008 would be like. This year’s estimated payments will be significantly lower. Of course, Fairfax County (VA) has increased property tax rates to more than offset the assessment decline. It’s for the children they say.
Virginia’s state income tax is almost a flat rate, and it is down 15% for the quarter, year-to-year comparison. Sales tax is down 6% on the same basis. Apparently self-employment income tax payments are up, although withholding tax receipts are down. That may reflect a shift from employee status to self-employed contractor for some.
Jack
Interesting. Thank you, Jack.
I don’t know how forward-thinking businesses are with respect to the impact of Obamacare, but I suspect that the costs of that will push more people from paycheck to self-employment.
Causing the numbers of self-employed to rise is not a good long term strategy for Democrats. There is a certain amount of boiling frog syndrome that occurs when taxes are withheld. It is an entirely different experience when you have to write that quarterly deposit check yourself, including both sides of the FICA payment.
It is the equivalent in withholding deposits that moving to the suburbs and owning your own home/buying your first lawn mower: This is mine, I worked for it, and you can’t have any more of it. That’s why Democrats want to keep people as renters, in the cities. Ownership societies aren’t so willing to give up a portion of their castle.
STARVE THE MSM BEAST: Cancel all print media and cable TV, at least until the 2010 election is over. Take away their propaganda machine.
Freedom FROM the “PRESS.”
STARVE FEDERAL and STATE BEASTS: Avoid all unnecessary purchases. Keep dropping their tax receipts by buying less, including gasoline.
“If receipts are greater than expected, then the deficits will be smaller than predicted …”
Ahhhh … you’ve hit on the GOPs dirty little secret.
See, they’re not against spending. They want tax rates to be as low as will possibly maximize federal receipts. The GOP wants the Federal Government to be positioned such that the total amount of taxes collected is the maximum possible.
They believe that the best way to maximize receipts is to have lower tax rates. And Reagan proved that system works. Under Reagan, taxation was incredibly high.
You’d think the GOP was for low taxes. But you’d be wrong sir. And it’s why they’re never, ever going to be in power again.
“The GOP wants the Federal Government to be positioned such that the total amount of taxes collected is the maximum possible.”
This piece of Macchiavelliana would imply that the GOP is far smarter an organization than they actually are. (Not for nothing are they known as “the Stupid Party”.)
Would that your supposition was true; but I’m afraid that the concept of higher tax receipts through lower tax rates STILL hasn’t made its way through the collective myopia of official GOP policy.
The larger problem is entitlement/non-discretionary spending, Mysteryman. If you take out Social Security and other non-discretionary spending, the spending ‘increases’ (by GOP administrations) have not been high, remaining close to inflation-rate increases.
If the Press were doing their job (and they could actually do arithmetic) they’d be explaining that to people.
It is very difficult and complicated to compare budget from year to year. Many people, for example, always bring up how high the tax rates were during Eisenhower. Comparing rates then to rates now is a bit of a sleight of hand, as the types of items and volume that businesses could deduct were very different from today. As tax rates are lowered, “loopholes” are closed. You can’t compare table rates. At minimum, you have to compare effective tax rates. Compare the amount that was paid in FICA during that period to now and you can see that effective taxation is moved to different line items, but the totals paint an interesting story.
Given what we’re facing now and a balanced budget, I think erring on the side of “balanced” is the better option. At least “generational theft” wasn’t in the mix.
Even that is a scam. “Generational theft” is a given, as long as we have Social Security, and it is there that we find the lion’s share of GOP inherited inability to demonstrate restraint (and that doesn’t include the problems of the Democrats always raiding the Defense budgets, requiring that the GOP increase DoD spending when they get in).
I used to track this and extrapolate receipts and expenditures through the fiscal year based on previous rates and current rates.
I strongly believe that it will be worst case scenario at best. California has posted its receipts.
“General fund revenue was down $1.89 billion, or 16 percent, in April from budget estimates. Personal income taxes were down $1.06 billion, or 12.6 percent, and corporate taxes were down $831 million, or 35.6 percent, from estimates.” (‘State’s budget deficit grows to $20.5B’, San Francisco Business Times).
On top of that, Californians are ‘Going Gault’ by not approving (so far) ballot initiatives to ‘balance the budget’ via tax increases. The May 19th ballot initiatives are failing in the polls. Californians have NO confidence in the political leadership they elected.
This is a change.
Is it hope.
California is interesting to watch (ditto NY) because the state is hemorrhaging workers/business to productive/low-reg/tax states at an amazing rate (if you track u-haul rentals).
The anchor states will be the first to collapse. Actually, they are fairly close to collapsed already, but you’d never know that by reading the sunshine and rainbow press reports. So much for the liberal experiment, eh?
I would assume that the Democrat-controlled legislature are pissing in their pants hoping for those ballot initiatives to pass. When they don’t, it will be like Prop13 all over again. There won’t be Obama coat-tails to get those who would vote for their passage to the polls.
Also, little attention has been paid to the economic effect of people “going green”, that is, cutting back on economic activity because it will “destroy the planet”. The 55-mph speed limit imposed in the ’70s had a marked effect on what is called the velocity of transactions. Even though few cars actually went 55, they slowed down some and reduced economic activity. Similarly, green fatuousness makes people less likely to invest, enjoy their successes and have more children, hurting the economy.
True, but there was nothing that caused that to happen suddenly, that I know of, Mr. Speirs. That would have been gradual and shown up in previous year data, don’t you think? Last year we had high gasoline/fuel prices that drove profits down, so it isn’t like we’re comparing a glowing year to a fizzling one.
[...] points to this post at Maenianum Secundum, “Hemorrhaging Federal Receipts“, where Herself writes… In September 2008, many people saw the writing on the wall, and [...]
[...] points to this post at Maenianum Secundum, “Hemorrhaging Federal Receipts“, where Herself writes… In September 2008, many people saw the writing on the wall, and [...]
[...] update Remember this? Turns out it’s overly optimistic, at least for the short [...]
I wonder how much of the drop in receipts comes from self employed individuals who normally pay estimated taxes quarterly based upon their anticipated annualized tax liabilities. I have a small consulting business, and my revenues have plummeted, so I have slashed my estimated tax payments accordingly.
I don’t have the data to quantify that, Biff. The problem with that sort of thing is that it is months/years before that granularity of data is available. Until then, we can only speculate. The comments on the BizzyBlog post (linked above) give some examples of that, but they are (of course) anecdotal. Investment losses also make up a portion of the decline, but I think we all expected that. Other signs, such as the number of people filing extensions, give us clues to how bad it is out there.
One of the comments on BizzyBlog also gives another interesting clue: May 1 was a Friday, the day that refunds are processed. That will push some of the data that would (in comparison) appear in April data, making things even worse for May. Because of that Friday date, it made April’s data not nearly as bad as it could have been. 2Q to TTL2Q comparisons will be interesting to see.
Companies on an accrual method can defer some of their losses until later in their FY, so the effect should be drawn out for some time.
It is quite amazing. Some people think you can bring out an array of huge cannons, point them at some villages on a nearby hill, and announce with a bullhorn that you will begin destroying those villages in sixty days — and that the people living in those villages won’t do anything! Nope, they will just sit there and wait to be killed.
Strange.
Some will, Jaafar. See ‘California’ comment above.
[...] one remaining piece to this terrifying economy puzzle and that is government revenue. The folks at Maenianum Secundum and BizzyBlog have done an amazing job of detailing the decline in Federal revenue over the past 6 [...]
What Obama and his cronies forgot is that the people they intend to milk for the benefit of their favored constituencies were the people smart enough to see him and his actions coming. He’s sowed the wind. The whirlwind isn’t far behind.
When do they start whistling past the graveyard? When do the tea bagging jokes stop? You will know, when they become really concerned because they will insist that the commentary in the news cycle become civil…as if they have any idea what the definition of Civil “IS”
Odd even Olbermann didn’t like Wanda Sykes taking shots at Rush Limbaugh…..who woulda thunk that would happen?
Ogabe is readying his tax increase on incomes over $250k. After 37 years of working I made it over that number, but you can bet your *ss that it won’t be over that number next year. The marginal return on the effort won’t be worth it. I know a lot of folks with incomes that have climbed to between $250k and $300k after many years of hard work that have decided to work less and duck under limit. Of course, all those lower income workers who benefitted form us spending our additional income will lose, but we have no moral obligation to keep working to pay higher taxes and take home a reduced marginal reward. Its kind of a modified JG: we could be more productive and create more wealth, but we decline to do so. We’ll be fine. The Dems can go spit.
The tax increases will apply at $235K and the top rate will be 39%. They are also planning to max the deductions to 28%. With all the “loopholes” they are closing, the effective rate will be around 48%.
If you’re near $200K, it is time to cut back on your hours.
Tigerhawk’s post today (linked on Instapundit) also mentioned that they’re also considering a plan to force business to start withholding on contractors who are paid more than $600.
[...] Taxman Shrinketh A friend forwarded an interesting piece titled “Hemorrhaging – Especially Uncle Sam” on the ramifications of the sharp recent drop in federal tax revenues. The article is from a new [...]
[...] Hemorrhaging – Especially Uncle Sam There are various entities in the Federal government that look at the financial status of the government (OBM, CBO, [...] [...]
The first step to fixing our political system is to stop paying the “politician tax”….
Politicians are not like the rest of us…. they are keenly obsessed with “getting elected” as a measure of success, but although this would seem to suggest that they should care about representing the views of the electors — the people — it doesn’t work out that way. With extremely rare exceptions, politicians preserve their interests by serving their party (whichever one it is) over the people, and by serving corporate interests and other special interests next to that, also over the people…. so where do we fit in?
They see us as votes and money, and many of us are suckers…. how many of you donated money to a politician or a party last year? The sad truth is that whatever you did donate was actually a tax imposed by the system through blackmail, one that you didn’t have to pay at all, but volunteered…. I have to admit, I’m in that crowd, even though I only gave to Libertarian candidates (who all lost) and the amount I donated amounted to pocket change even in their meager coffers…. but I’d take it back if I could….
Look at it this way: imagine there are two bullies on your block, and both want to take your lunch money…. each says that if you “voluntarily” pay him, he’ll protect you from the other one, and each one talks up how dangerous the other one is in order to convince you to buy protection… but the truth is, if you learn to defend yourself you don’t have to give a penny to either of them.
That’s what the Republicrats do — each side uses the other as a threat to pry your dollars away in the form of campaign donations, and the first and biggest thing WE can do to eliminate donation-driven corruption from the system is to turn off that voluntary faucet of cash flowing out of our pockets.
In short: DO NOT GIVE ANY MONEY TO POLITICIANS!! not to a candidate, not to a campaign, not to a party, and if you can help it, not to an organization or company that will pass it on to any of those (even a company that will hedge its bets by giving to both sides; in fact, especially such a company)…. clean up our politics, do NOT pay the politician tax!!
I disagree, not with everything you say, but certainly with the not contributing aspect. I intend to give as much as I can to candidates I support, more than I ever have before, because my failure to be so involved and contributing in the last election is going to cost me a lot more.
I am a Republican, by the way. I’m quite proud of being one, although that doesn’t mean I support or like all Republican candidates/elected officials, nor do I support 100% of the platform or the Party heads.
I do not think that withdrawing is the way to go. In fact, I think it is contrary to exactly what we should be doing, and the idea that others, like yourself, are considering it (and soapboxing about it) fills me with dread and loathing.