Steepest Revenue Loss Since the Great Depression.

On July 20, 2009 AP reported , the Obama Administration would delay the release of the annual midsummer budget update normally released in mid July. The update was predicted to show higher deficits, lower revenue and higher unemployment levels which could potentially derail the President's efforts to get health care legislation before the August recess. With Congress now on recess, The Associated Press was able to view the revenue numbers and the numbers were startling. The following chart shows the steep loss in revenue not seen since the Depression:



While tax revenue is set to drop 18% the federal deficit is on course to run a record $1.8 Trillion. The AP notes:

Other figures in an Associated Press analysis underscore the recession's impact: Individual income tax receipts are down 22 percent from a year ago. Corporate income taxes are down 57 percent. Social Security tax receipts could drop for only the second time since 1940, and Medicare taxes are on pace to drop for only the third time ever.

How might this revenue loss effect the Administration's agenda? William Gale, an adviser to George H.W. Bush serving on the Council of Economic Advisors responds:

"If it's just one year, then it's a remarkable thing, but it's totally manageable. If the economy doesn't recover soon, it doesn't matter what your social, economic and political agenda is. There's not going to be any revenue to pay for it."

Social Security set to begin paying out more than it receives in revenue in 2016, it is projected the entitlement could be depleted by run out of funds as early as 2029. President Obama argues that health care reform is necessary in order to prevent bankrupting the country. The Congressional Budget Office has a chart that shows factor affecting the long term debt as a percetage of GDP:


Director Elmendorf notes:

Keeping deficits and debt from reaching these levels would require increasing revenues significantly as a share of GDP, decreasing projected spending sharply, or some combination of the two.

Since medical spending on the growing aging population a key factor in long term debt, any health care reform must be more than deficit neutral, it must do as the President has said needs to be done, "bend the cost curve downward." None of the current Democrat proposed legislation does that, in fact they increase long term deficits. Passing such legislation in haste before the true picture of the current situation would have been reckless and irresponsible.