Declining Real Revenues

By Fester

The mid-year deficit has increased dramatically and that is the headline, but it is not the real story.  Instead the real story is the declining real revenues on both an absolute and per-capita terms.  The AP reports the following facts:

The Treasury's monthly budget report showed that revenues for the first six months of the budget year, which began on Oct. 1, totaled $1.146 trillion, up 2.2 percent from last year. However, government spending was up by a much faster 5.7 percent, rising to $1.457 trillion. Both the spending and the revenues were records for the first six months of a budget year.

The 2.2% increase in revenue is in nominal dollars.  Over any year, absent either massive economic or policy shocks, we should expect government revenue to increase due to the combination of inflation and population growth.  Well right now it is looking like the Federal government took in roughly 3% less revenue in real dollars as it did in the same period as last year. 

Using the CPI-U for September 2007 to Feb. 2008, we have a rough annualized inflation rate of 4.8% according to my calculations using the data from page 3, and the US has been seeing roughly 1% population growth, so over the past six months another 0.5% of the country has been added.  So in real dollars, revenue has dropped 2.5% and in per-capita terms in real dollars by about 3%.  And this is before the worst of the slowdown has really begun.  Revenue will get far worse before it gets better, which means discretionary funding will become that much tougher to justify.  We are, or at least the bottom ~90% of the income scale, as John Robb notes, about to end an unnoticed lost decade for most Americans.