Saturday, June 27, 2009

Personal Transfer Receipts Now Larger Than Tax Payments

The trends that I described before, with a falling market based income and rising net income from government (also known as the budget deficit) in America continued in May.

As a result of the latter trend, personal transfer receipts (such as social security and unemployment benefits) for the first time exceeded personal tax payments. Personal transfer receipts were $2,235.5 billion in May 2009, up 18.1% from 6 months earlier. Meanwhile, "personal current taxes” fell 20.6% to $1175.5 billion while the separate tax category "contributions for social insurance" fell 0.8% to $987.8 billion. While total tax payments exceeded transfer receipts by $578 billion 6 months ago, they are now $72.2 billion lower.

That personal transfer receipts now exceed personal tax payments is quite extraordinary since transfer payments do not include direct government purchases (spending on the military, law enforcement, schools, roads etc., which total more than 20% of GDP) or interest payments on the national debt. While the government also receives some income from corporate income taxes, payroll taxes and sales taxes, these revenues are relatively small in America, much smaller than spending for government purchases and interest payments. This means that unless the deficit is really extraordinarily large, personal tax payments should exceed personal transfer receipts by a large margin. The fact that transfer receipts are now larger confirms that the deficit is extraordinarily large.


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