Tax Collections Plummet In The US

by Mike Godfrey, Tax-News.com, Washington

21 May 2002

The US Government reported on Monday that tax receipts in April, normally a peak month for collections, totaled US$237.4 billion, 28.5% below last year's $331.8 billion. Economists are now saying that the government will run a deficit in this fiscal year of more than $100 billion, and that it will be even higher in 2003.

The Treasury however doesn't agree. In testimony to the Senate Finance Committee last week, Treasury Secretary Paul O'Neill explained that the original 2002 budget surplus of $283 billion would turn out to be a surplus of $9 billion. He explained the difference as being due to the weaker economy ($197 billion), enacted spending ($54 billion) and tax relief ($40 billion). But he implied, without saying so, that the budget would fall into deficit in 2003.

Democrats of course were quick to seize on the tax collection figures to attack the administration: Senator Joseph Lieberman of Connecticut said in a speech in Detroit that President Bush's tax cuts should be reined back, saying that the president has "relied on a plan that could fit on the back of a shampoo bottle: 'Cut taxes, increase spending, borrow, repeat.'"

Administration spokeswoman Claire Buchan said he was misguided, saying: "The positive signs we're seeing in the economy are the result of the president's leadership and the leadership of Congress last year in passing the tax cut."

The difference between the Republicans' and the Democrats' views is a question of the growth rate. Paul O'Neill told the Finance Committee: "We see more and more signs every day indicating that the seeds for a recovery are there, and only need nourishing to speed the process of putting Americans back to work. I believe we will return to prosperous economic growth rates of 3 to 3.5 percent, as soon as the fourth quarter of this year, especially if we are able to pass still-needed economic security legislation to hasten and strengthen our recovery. Even with all that must be done to enhance our security, we expect that a return to economic growth will bring us back to government surplus in 2005."

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