Wednesday, August 11, 2010

July budget numbers show revenues improving

Over the past 10 months, and on a rolling 12-month basis, the federal budget deficit has actually shrunk from $1.6 trillion to just over $1.3 trillion. As this chart shows, that's due to a combination of reduced expenditures and increasing revenues. Expenditures are still off the charts on an historical basis and relative to GDP, and that's bad, but the increase in revenues is a very welcome sign that the economy is on the mend. It's quite typical for revenues to decline in the wake of recessions, and then to come back once a decent recovery gets underway, and this time is no exception. Rising revenues mean that incomes and profits are up, and that only happens when the economy expands.

This next chart compares the above numbers to nominal GDP:

This last chart focuses on the difference between these two lines:


Public Library said...


If Q2 GDP gets revised down to 1.1/1.2%, your forecast for 4% 2010 GDP is looking mighty iffy. The rank and file are all starting to slash estimates.

允黃淑 said...
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marmico said...

Don't you really mean that the first derivative of expenditures is improving faster than revenues?

My eyeball says that 2010 expenditures are not very far removed from 1981; Expenditures are still off the charts on an historical basis and relative to GDP must be a misprint.

My eyeball says that revenues have been off the charts since 2001.

Don't worry, I know your drill. Tax cuts=increased revenues. Now where is that bend in the Laffer Curve again?

Scott Grannis said...

marmico: I hope you realize that in the absence of any changes in tax rates (which haven't changed since 2003), revenues are a passive function of incomes and profits. In the wake of the Bush tax cuts of mid-2003, revenues never fell (either nominally or as a % of GDP) and instead rose for the next 5 years. A supply-sider might be forgiven for thinking that the Bush tax cuts helped boost the economy, which in turn resulted in higher revenues. He might also be forgiven for thinking that, with the economy operating 10% below its full-employment level and revenues very depressed, raising taxes would not be a prudent course of action. He might also be forgiven for thinking that the surge in spending of the past two years (part of which should be charged to Bush) has certainly not helped the economy, and has probably hurt it.

Paul said...


Would you agree the tax reductions in the lower brackets were net revenue losers?

Scott Grannis said...

Paul: I'm not sure, and I don't have the data. But I would note that since almost 50% of taxpayers pay no income tax, changing the tax rates on lower income brackets is not likely to make much of a difference to the big picture no matter what.

What is a clear revenue loser is a tax rebate, since they are one-time things that don't change incentives.