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Rising Corporate Tax Revenues Shrink US Budget Deficit

by Leroy Baker, Tax-News.com, New York

17 August 2005

The United States budget deficit is expected to total $331 billion in 2005, representing an $81 billion decline from the deficit recorded in 2004, thanks in large part to a surge in corporate tax receipts, the Congressional Budget Office said in its latest budget outlook update.

According to the CBO, a non-partisan arm of Congress, this year tax revenues are likely to be $85 billion higher than forecast in the previous update in March as a result of "robust growth" in corporate income tax payments. In the first three quarters of the fiscal year, which ends in September, the tax take was up by more than $200 billion to about $1,604 billion, an increase of almost 15% compared to the same period last year. Individual income tax receipts are up 18 % to $701 billion so far this fiscal year.

The improvement in the government's fiscal position means that the deficit will be equal to 2.7% of gross domestic product in 2005, down from 3.6% last year. However, supplemental appropriations, mainly for ongoing military operations in Iraq and Afghanistan, will offset this revenues increase by about $33 billion.

Although the 2005 deficit is lower than predicted, the CBO expects the fiscal outlook over the next decade to be unchanged from that predicted in March. If the laws and policies currently in place did not change, the deficit is set to shrink slightly over the next few years according to the CBO's projections. The deficit will then start to decline more sharply after 2010, reflecting the tax increases scheduled to occur after the expiration of tax cuts passed in 2001 and 2003. By 2015, the baseline deficit would decline to 0.3% of GDP.

Individual income taxes are responsible for all of the projected rise in revenues as a percentage of GDP over the next 10 years. Revenues from corporate income taxes are projected to peak this year at 2.2% of GDP and then gradually diminish. Other sources of revenues, the largest of which is social insurance taxes, are estimated to remain relatively stable as a share of GDP.

The full text of the CBO Budget Outlook Paper can be found in the Tax News Resources section.

 

 






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