Income tax season is over and the numbers are in, and from the standpoint of the U.S. Treasury, they’re not good. 

Federal tax revenues are collected throughout the year but are highest in the month of April, when most tax returns are filed. A year ago, the Treasury’s April revenue totaled $404 billion. This April, it fell to just $266 billion. That’s the largest April-to-April decrease since at least 1981 (the earliest year for which we could find monthly data).

A breakdown shows the following decreases:

What does this imply for the Federal budget? The revenue side has not been the major factor in the ballooning Federal deficit, which is projected to be $1.8 trillion this year, 10 times larger than it was two years ago. The main culprit has been the extraordinary increase in government spending. But the revenue side does matter. Had it not been for the cyclical downturn in revenue, the deficit would be significantly smaller than it now is.

The Obama administration projects that revenues will rebound in 2011, partly as a result of the stimulus package. Indeed, they project that revenues will eventually be larger, relative to GDP, than they were even during the boom years of the late 1990s (when we had budget surpluses). Even if that does happen, the administration also projects that government spending will be so much higher each year that large deficits will continue, and the national debt held by the public will double over the next 10 years. If revenues don’t rebound as much as projected, the debt will be that much higher.
 

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