It didn’t get much attention in the midst of the all-out fight on Capitol Hill over efforts to overhaul the Obama health law, but a Congressional Budget Office report this week again signaled that something odd is going on with tax revenues coming into Uncle Sam so far this year, as they remain well below anticipated levels, leading to a spike in the federal deficit.
The headline on the CBO’s regular June budget update was bad enough, as it forecast a $134 billion jump in the deficit in 2017, up to $693 billion, which would be the highest yearly deficit since 2012.
The reason for that forecast was mainly because of something that had been noticed earlier in the year, that tax collections at the federal level are down – the CBO estimates they are $89 billion below what had been expected.
“Surprisingly weak tax collections since then have led the agency to lower its projection of revenues by $89 billion,” the CBO reported.
The rest of the deficit increase comes from increases that CBO says are taking place in loan and loan guarantee programs which are already on the books – to the tune of $45 billion.
Why are tax revenues slowing? The CBO really didn’t have an answer, as it projected that revenues from “individual income taxes are expected to fall by 0.2 percentage points of GDP.”
Often something like that would be an indicator of a lack of economic growth, but some have argued this may be related to more wealthy taxpayers not making large estimated tax payments, hoping that major tax cuts are approved this year by the Congress. There is no hard evidence to back up that assertion.
As for the level of the deficit, $693 billion would be a big jump from the $585 billion deficit in 2016 – a 23% increase.
Here is what the federal deficit has done in the last 10 years:
2007 – $161 billion
2008 – $459 billion
2009 – $1.413 trillion
2010 – $1.294 trillion
2011 – $1.300 trillion
2012 – $1.087 trillion
2013 – $679 billion
2014 – $485 billion
2015 – $438 billion
2016 – $585 billion
Like 2016, the 2017 deficit seems to be going in the wrong direction.
The 2007 deficit under President George W. Bush was the lowest deficit since the budget was balanced for several years during the Clinton Administration, in the late 1990’s.