The Congressional Budget Office estimates the U.S. will report nearly a trillion dollar deficit for the first nine months of fiscal year 2012.
In its “monthly budget review,” the CBO reports that the Treasury Department has accrued a $905 billion deficit throughout the first three quarters of the fiscal year, which began on Oct. 1, 2011. The deficit was $66 billion less than the $971 billion deficit incurred over the same period of fiscal 2011.
The deficit was lower because spending was about one percent higher than 2011, while revenues were five percent higher than at this point last year.
The brunt of revenue increases came from corporate income taxes, which grew by $42 billion from last year, by 31 percent. Personal income taxes grew by $26 billion, or 6 percent.
Spending decreased in programs like Medicaid and unemployment benefits. Education program spending fell by $27 billion, or 36 percent, while defense spending saw a decrease of $16 billion, or about 4 percent.
Programs that got increased spending were Troubled Asset Relief Program (TARP), Social Security, Medicare and veterans’ programs.
The release of the report comes on the heels of the President Barack Obama’s request to Congress to continue the tax cuts for people making under $250,000 a year, while raising taxes on those earning more than a quarter million dollars. The president still maintains that taxes on the wealthiest two percent of Americans, however, should increase so they can “pay their fair share.”
A recent study, released by the Danish Economic Council, concluded that the progressive tax structure in Denmark may in fact reduce total tax revenues.
“Increased taxation on high income earners in Denmark at best is revenue neutral, and may even reduce total tax revenue. This result applies whether one considers the top 10, the top 5 or the top 1 percent income group,” the study says.
“As an example, the revenue effect of an increase in the marginal tax rate by 6 percentage points for high-income earners is calculated. Using the base estimate of the behavioural response to taxation, this leads to a revenue loss of about ½ billion DKK,” the study continues.
Cato Institute economist Dan Mitchell wrote in a blog post that he doesn’t understand how politicians can ignore studies such as this and continue to advocate for “fair share” taxes on things like capital gains.
“None of this is to suggest that ‘all tax cuts pay for themselves,’” Mitchell writes. “That only happens in unusual cases where a group of taxpayers — such as wealthy entrepreneurs and investors — have considerable flexibility in their economic affairs.”
Mitchell notes that “in most cases, the government will collect more revenue when tax rates increase. This is because the impact of the change in the tax rate is larger than the impact of the change in taxable income.”
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