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The following is an analysis of the Revenue section of the January 2001 CBO Budget and Economic Outlook.  The text in *RED are comments included by the website host.

 

 

The Budget and Economic Outlook: Fiscal Years 2002-2011
January 2001
Section 5 of 15

 



Chapter Three


The Revenue Outlook

The Congressional Budget Office estimates that total federal revenues will exceed $2.1 trillion in fiscal year 2001 * (Actual was $1.991 trillion) if current policies remain unchanged, marking the ninth consecutive year in which the growth of revenues has outstripped the growth of the nation's gross domestic product (see Figure 3-1). Revenues are expected to grow more slowly than GDP (nominal) through 2007 and then faster than GDP through 2011 * (CBO has previously stated the out years are hardest to project). In that year, revenues are projected to be $3.4 trillion, or about 20.4 percent of GDP.  * ( 20.4% is a high rate when compared to historical averages.)


Figure 3-1.
Annual Growth of Federal Revenues and GDP, Fiscal Years 1960-2011



 

SOURCE: Congressional Budget Office.


 

CBO expects that the growth of receipts will be slower than the rapid pace of the past few years. From 1994 to 2000, revenues rose at an average annual rate of 8.3 percent, much faster than GDP * (What was the tax policy in effect to allow tax revenues to rise higher than GDP?  Is it the graduated income tax rate or is it a tax not based on GDP?)  In 2000, at 10.8 percent, the growth of receipts was faster than in any year since 1987 (when growth was subject to a one-time boost from the Tax Reform Act of 1986). * (Again, was there a tax policy change to cause the 2000 increase as cited for 1987?)  Consequently, as a share of GDP, revenues rose from 18.1 percent in 1994 to a post-World War II high of 20.6 percent in 2000--a level exceeded only once, in 1944 (see Figure 3-2).   * (How did this happen?)
 

Although slowing in 2001, the growth of receipts, projected at 5.4 percent over the previous year, still outpaces the projected growth of GDP, pushing the ratio of receipts to GDP to 20.7 percent in 2001 * (Actual 2001 was 19.7%), which is expected * (“Expected” but did not happen) to become the new postwar peak. In 2002, the growth of receipts is projected to slow further, to 4.7 percent--less than the growth of GDP--so as a percentage of GDP, receipts will slip to 20.5 percent * (Actual 2002 was 17.7% but there was some tax law changes). The growth of receipts remains at about that rate through 2007 but as a percentage of GDP continues to fall, to 20.2 percent. After 2007, the growth of receipts is expected to rise, to 5.4 percent in 2011, and to increase relative to GDP, reaching 20.4 percent by the end of the projection period.

The current revenue outlook is $919 billion higher through 2010 than CBO projected last July (see Table 3-1). About seven-eighths of that increase--or about $800 billion--stems from changes in CBO's economic forecast * (In spite of the acknowledging a slow down, CBO is estimating an increase in revenues based on the economic forecast), which causes a boost in receipts from individual and corporate income and social insurance taxes. The net effect of recently enacted legislation--primarily the Community Renewal Tax Relief Act of 2000 (H.R. 5662) and the FSC (Foreign Sales Corporation) Repeal and Extraterritorial Income Exclusion Act of 2000 (H.R. 4986)--reduces projected revenues by about $37 billion over the 10 years from 2001 to 2010. The remainder of the increase since July results from a number of adjustments in the methodology and assumptions that determine how much tax is generated by the tax base. * (CBO notes there have been adjustments in assumptions resulting in higher revenue projections.) Those technical revisions total $153 billion over the 10 years.
 


Table 3-1.
Changes in CBO's Projections of Revenues Since July 2000 (By fiscal year, in billions of dollars)


 

 

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Total,
2001-
2010


July 2000 Projection of Revenues

2,109

2,202

2,290

2,380

2,486

2,594

2,706

2,826

2,960

3,102

n.a.

 

Legislative Changes

 

Individual Income

-1

-1

-2

-2

-2

-2

-3

-3

-3

-3

-22

Corporate Income

0

-1

-1

-1

-1

-1

-2

-2

-2

-2

-14

Other

-1

-1

0

0

0

0

0

0

0

0

-1

 

Subtotal

-2

-2

-3

-3

-3

-4

-4

-5

-6

-5

-37

 

Economic Changes

 

Individual Income

-4

-1

10

22

31

41

51

61

72

84

366

Corporate Income

4

15

24

29

31

33

36

42

49

58

319

Social Insurance

-3

-2

2

8

12

16

20

26

30

33

143

Other

-4

-5

-4

-3

-2

-2

-1

-1

-2

-2

-26

 

Subtotal

-6

7

32

56

72

88

106

128

148

173

802

 

Technical Changes

 

Individual Income

25

20

12

8

5

2

0

-2

-4

-6

60

Corporate Income

11

11

10

10

10

9

8

8

7

6

90

Other

-3

-1

1

1

1

0

1

2

1

2

4

 

Subtotal

33

29

24

20

15

11

9

7

4

2

153

 

Total Changes

 

All Sources

25

34

53

73

84

95

110

129

146

170

919

 

January 2001 Projection of Revenues

2,135

2,236

2,343

2,453

2,570

2,689

2,816

2,955

3,107

3,271

n.a.


SOURCE: Congressional Budget Office.

NOTE: n.a. = not applicable.


Federal revenues consist of individual income taxes, corporate income taxes, social insurance taxes, excise taxes, estate and gift taxes, customs duties, and miscellaneous receipts. Individual income taxes produce about half of total revenues, an amount equal to roughly 10 percent of GDP (see Table 3-2 and Figure 3-3). Corporate income taxes contribute about a tenth of revenues, equaling approximately 2 percent of GDP. Social insurance taxes (including Social Security taxes, which are off-budget) are the second largest source of revenues, equaling about a third of total receipts and less than 7 percent of GDP. Other taxes and miscellaneous receipts, including profits from the Federal Reserve System, make up the balance.
 


Table 3-2.
CBO's Projections of Revenues (By fiscal year)


 

 

 

Actual
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011


In Billions of Dollars

 

Individual Income

1,004

1,076

1,125

1,176

1,230

1,289

1,354

1,424

1,500

1,583

1,675

1,774

Corporate Income

207

215

217

226

236

246

255

264

276

289

303

319

Social Insurance

653

686

725

762

797

840

879

921

963

1,010

1,059

1,110

Excise

69

71

74

76

78

81

83

86

88

91

94

97

Estate and Gift

29

30

32

34

35

36

37

39

43

46

48

52

Customs Duties

20

21

23

24

25

26

27

27

28

29

30

31

Miscellaneous

43

36

41

44

51

52

54

55

57

59

61

63

 

 

Total

2,025

2,135

2,236

2,343

2,453

2,570

2,689

2,816

2,955

3,107