Plunging Revenues Ask Taxing Questions Of Obama

by Mike Godfrey, Tax-News.com, Washington

07 August 2009

Just a day after President Obama was forced into a Bush senior-style ‘read my lips’ defence following gaffes by off-message senior administration officials, news that federal tax revenues are plunging at a faster rate than at any time since the Great Depression could not have come at a worse time.

According to a new analysis by the Associated Press of tax receipt figures dating back to 1913, when the federal income tax was born, revenues from personal income tax in the fiscal year to the end of June are down by 22% compared to a year ago, while corporate tax revenues are down a whopping 57%.

The government’s fiscal year runs from October through September, but when the figures are extrapolated, the AP concludes that, overall, the federal tax take will be down 18% this year – the largest annual decline since the 1930s.

When stacked against a federal deficit on target to reach USD1.8 trillion this year – equal to almost 13% of the US economy – the figures will make grim reading for the President (should he choose to read them) as he attempts to force through costly heath reform legislation, which itself is set add more than USD1 trillion in red ink to the government ledger.

Obama claims that he can deliver ‘deficit neutral’ health care reforms. Indeed, he has pledged to halve the federal deficit by the end of his first term in office while reducing the national debt. And, as he so vocally promised during last year's election campaign, he plans to do all this without raising taxes for the vast majority of Americans, i.e. those making less than USD250,000 per year. At least, that’s what he thinks. His chief economic advisor, Larry Summers, appears to be singing from a slightly different hymn sheet these days, however.

"It's never a good idea to absolutely rule things out no matter what,” Summers said in a CBS interview on August 2 in response to questions over tax. “There is a lot that can happen over time.” This after telling CNBC in March that there will be "no tax increases this year" and "no tax increases next year."

On the same day but on a different network, Treasury Secretary Tim Geithner's attempt to stonewall the same persistent line of questioning on tax ultimately backfired as he repeatedly refused to rule out higher taxes, and not just for the wealthy, telling ABC television that “what the country needs to do is understand we're going to have to do what it takes" to pay for health care reform.

When pressed on whether the President’s program is achievable without broader increases in tax, White House spokesman Robert Gibbs insisted on August 3 that the President remains “committed to doing those things.”

“The President was clear in the campaign about that,” he told reporters. “I think in some ways those goals overlap. We're not going to make progress on the deficit without dealing with health care.”

“The President was clear during the campaign about his commitment on not raising taxes on middle-class families,” he added. “And I don't think any economist would believe that in the environment that we're in raising taxes on middle-class families would make any sense, and the President agrees.”

Gibbs batted away awkward questions about Geithner’s and Summers’s remarks by suggesting that they were engaging in nothing more than a bit of harmless “hypothetical back and forth” with their respective interviewers. But he reiterated that there is “no question” Obama is serious about his fiscal responsibility claims.

“I think what they both talked about was… we're not going to be able to sustain any sort of economic recovery unless or until we do have a path toward fiscal responsibility. But they also said that that shouldn't be done [by] burdening middle-class families,” he said. “So I think the President's commitment on this is clear.”

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