|
US public finances feel the pinch
The economic downturn in the US is starting to hit government revenues, the head of the Congressional Budget Office has told the Financial Times.In an interview, Peter Orszag, the CBO director, said the slowdown is showing up in revenue. Tax receipts were softer across revenue as a whole but the slowing is most marked in corporate tax receipts. Mr Orszag said any further deterioration in growth would have a still larger effect on tax revenues. Revenues disproportionately fall when income weakens and rise when income strengthens, he said, in part because of the progressive tax code. His comments echo warnings by the International Monetary Fund that the credit crisis and weaker growth outlook will have an effect on public finances in many countries, including the US. The CBO director said the slowdown in tax receipts was sharpest with respect to corporate income tax receipts, because the growth there between 2003 and 2007 was so dramatic. Corporate tax receipts more than doubled from 1.2 per cent of gross domestic product in 2003 to 2.7 per cent in 2007, surprising experts including the CBO. Mr Orszag said one big reason for this increase was the rise in the share of national income going to corporate profits at the expense of owners of debt and labour. Since debt is tax preferred relative to corporate profits, that has a significant effect on tax receipts. The corporate profit share, he said, would likely decline in response to a weaker economy undermining corporate tax receipts. Some economists believe that, in addition to cyclical factors, the repricing of credit under way in financial markets could also lead to a shift in the national income share back from corporate profits to debt. If this happened, corporate tax revenues could surprise on the downside even relative to growth in the coming years, just as they surprised on the upside in the past few years. Mr Orszag declined to comment on whether this might happen. Posted by: lotp 2008-01-11 |
| http://www.rantburg.com/poparticle.php?ID=218497 |