STUDY: TO CLOSE DEFICIT, FEDERAL INCOME TAXES WOULD NEED TO DOUBLE

If you have been reading my blog you know that I am concerned about the deficit and the likely possibility that we could see inflation raising its ugly head. I have been through the 1970’s and 1980’s and I know how crippling such an economy can be to business. I recently had a person write me and say that I was being political on my blog. My father always told me to not discuss religion or politics. I have always tried to follow his advice. But I really think that the economy and government action that impacts business needs to be discussed. Here is an example.

According to the non-partisan Tax Foundation in Washington, D.C., federal income tax rates would have to more than double across the income spectrum if Congress were to close the U.S. budget deficit in fiscal year 2010. Instead of taxing joint filers with rates ranging from 10% to 35%, tax rates would have to start at 24.3% and reach up to 84.9%, according to the Foundation. Earlier this month, it was announced that the federal budget deficit in February was a whopping $221 billion – the largest monthly deficit ever in gross dollars. The deficit so far in this fiscal year (which began in October) is $651.6 billion, up 10.5% from the same period of the previous fiscal year. The current U.S. debt is about $12.6 trillion. “The federal government is spending so much that even if policymakers were willing to fund government services with actual tax revenue instead of piling on more debt, the federal income tax system in its current form wouldn’t be able to raise that much,” said a Tax Foundation spokesman. The press release and report can be read by clicking here.

HERE IS YOUR GOVERNMENT'S FINANCIAL STATEMENT FOR THE FIRST FOUR MONTH OF THEIR YEAR

If you are a successful business owner you probably have already studied your financial statement for the last few months to determine if there are some steps that you need to take to become more profitable. I thought you might be interested in a summary of our government's first four months.

The federal government ran a budget deficit of $434 billion in the first four months of fiscal year 2010, according to the latest estimate released by the Congressional Budget Office (CBO) on Feb. 4. (Monthly Budget Review)

• Outlays declined by 4% compared to the same period in FY 2009, and revenues dropped by 11%. Receipts in January were $23 billion (or 10%) lower than receipts recorded in January 2009.
• The amount of withheld individual income and payroll taxes declined by $11 billion (or 7%), with approximately one-third of the decline attributable to provisions of the American Recovery and Reinvestment Act of 2009, CBO said.
• Corporate receipts declined by $2 billion.
• Overall for FY 2010, receipts were down by $83 billion (or 11%) compared to the same period in FY 2009.
• Two-thirds of that decline resulted from lower withholding from employees' pay for income and payroll taxes.
• Net corporate receipts declined by $18 billion (or 34%) because of a combination of higher refunds and lower payments of estimated taxes.
• This decline “can be attributed to weak corporate profits and the effects of recent legislation that extended the period over which corporations could apply current-year losses to offset income in previous years,” CBO said.
  
  The budget review is available at http://www.cbo.gov/ftpdocs/110xx/doc11041/January2010MBR.pdf

If you were the owner, what changes would you make?

Larry Kopsa CPA