Do we have a revenue problem?

During the 2011-12 Fiscal Year tax revenues are expected to increase.  They are expected to really increase with the expiration of the Bush Tax Cuts.  After a decade of decreased revenue from tax cuts[1], I think we can put to rest the myth that tax cuts mean increased revenue.  In fact even Republicans want to raise taxes on the bottom 47% to get it near the historical 30%. Congresswoman Bachmann and Senator Dan Coats argue that the income tax should be universal even if wage earners pay a net of only a dollar a year.  Coats would have tax payers pay a net of ten to fifteen dollars a year.[2]  Cain's 9-9-9 would function as an universal income tax also.[3]  All of three of these proposals would eliminate any net profits from tax credits.  Cain's plan would eliminate tax credits like the child tax credit.

In 2010, increases in corporate revenues and in receipts from the Federal Reserve more than offset declines in individual income and social insurance taxes (sometimes called payroll taxes). As a result, total revenues rose by 2.7 percent (see Table 1-3). Corporate income taxes grew by 38 percent, or $53 billion, in 2010 because of stronger corporate profits resulting from improved economic conditions and the expiration in 2009 of legislation that allowed businesses to take higher depreciation charges. The increase of $46 billion in “other revenues” was attributable in large part to a doubling of receipts from the Federal Reserve. That jump resulted from an expansion of the Federal Reserve’s portfolio and a shift in the composition of the portfolio toward riskier and higher-yielding investments, as the Federal Reserve sought to support the housing and financial markets and the broader economy.

Partially offsetting the increases in corporate revenues and receipts from the Federal Reserve in 2010 were decreases in individual income taxes and in social insurance taxes. Cumulatively, those collections fell by $43 billion—a drop of about 2 percent overall from collections in 2009. That decline occurred early in the fiscal year and was largely attributable to lower tax liabilities incurred in 2009. During the final five months of fiscal year 2010, collections of withheld and nonwithheld taxes, which were based on 2010 income, were 4 percent higher than they had been for the same period in 2009. 

Under the assumption that current laws remain unchanged, revenues in CBO’s baseline are projected to rise by 3.1 percent in 2011—a rate that is slower than that for the overall economy. As a result, in CBO’s projections, receipts as a share of GDP decline slightly, from 14.9 percent in 2010 to 14.8 percent in 2011. The overall growth (in dollar terms) in projected revenues stems largely from individual income taxes, which are expected to increase by nearly $100 billion (or 11 percent) in 2011. In addition, CBO estimates that corporate income taxes will rise by $9 billion in 2011. However, those sources of growth are partially offset by a $46 billion (or 5 percent) decline in social insurance taxes, the result of a provision in the 2010 tax act that reduces the employee’s share of the payroll tax for 2011 only.[CBO]