Headline: Tax receipts show decline for first time in 18 years

Source: Financial Times, 27 September 2001

URL: http://news.ft.com/ft/gx.cgi/ftc?pagename=View&c=Article&cid=FT37RJ805SC&live=true&tagid=IXLYK5HZ8CC

US government revenues were plunging rapidly even before the terrorist attacks of September 11, according to a report published on Thursday, setting the stage for one of the biggest shifts in American fiscal conditions.

As policymakers plan further moves to damp the economic impact of the attacks on New York and Washington, the Congressional Budget Office reported that, with just two days left in the current fiscal year, tax receipts appeared to have declined this year for the first time since 1983.

The budget surplus for the year that began last October 1 is estimated to be $121bn, the CBO said. That represents the fourth straight annual surplus but is well below what economists had been forecasting just months ago, and less than half the previous year's total. The figures show the dramatic slide in economic performance in the last year and will heighten the uncertainty about prospects after the devastating attacks.

Congress has already passed emergency packages totalling $55bn of spending after the attacks and lawmakers and the White House are negotiating over a further stimulus of as much as $100bn over the next year. At the same time, the Federal Reserve has cut short-term interest rates and is expected to cut them further when its rate- setting open market committee meets next Tuesday. The combined effect is a massive attempt by policymakers to staunch the loss of business and consumer confidence following the attacks.

But officials at the Fed, including chairman Alan Greenspan, have expressed concerns that the scale of the fiscal stimulus could produce harmful side-effects in the form of higher interest rates, and the latest evidence of a steep decline in the surplus is likely to increase those concerns.

Mr Greenspan is worried that too large a fiscal shift could trouble bond market investors and cause long-term interest rates to rise. He suggested to senators in a closed-door meeting this week that they should keep total additional spending and tax cuts to about $100bn, of which almost $50bn has already been approved in emergency support for defence and the airline industry. The Fed chairman also told lawmakers that the biggest problem confronting the economy was lack of business and consumer confidence. Measures to restore confidence through improving public security could prove highly effective in aiding an economic recovery, he told senators, according to those present at the meeting.

On Wednesday, Mitch Daniels, director of the White House Office of Management and Budget, also told members of Congress that the surplus for the current year would be in the range of $120bn-$130bn. These figures include the surplus in Social Security, the public pension system.

Outside the Social Security budget, the federal government is estimated to have run a deficit of over $25bn in the current year.

-- Andre Weltman (aweltman@state.pa.us), September 28, 2001