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The monthly Treasury statement of the actual budget figures for 2013 this week shows tax revenue rising five times faster than spending fell in 2013.
Taxes revenue climbed by 13.2 percent from $2.45 trillion in 2012 to $2.77 trillion in 2013. Spending, on the other hand, fell by only 2.4 percent to $3.45 trillion in 2013 from $3.54 trillion in 2012.
At nearly $2.8 trillion, tax revenues hit an all-time record in absolute dollar terms, although they were still a bit below average as a percentage of the economy—just over 17 percent.
The growth in revenue is more evidence of what has long been known: There is plenty of revenue coming into Washington. The real problem is too much spending.
The revenue surge has two causes. First, although growth remains well below where it should be because of the uncertainty caused by President Obama’s economic policies, the economy is steadily growing at a slow rate, which increases revenue.
Second, the economy trudged along despite tax increases that President Obama demanded and Congress delivered.
Three sets of tax increases contributed to revenue growth in fiscal year (FY) 2013: tax increases in Obamacare, the fiscal cliff tax hikes passed earlier this year, and the expiration of the payroll tax cut that also kicked in at the beginning of the year.
All told, these tax hikes raised revenues almost $188 billion in FY 2013, which represent almost 60 percent of the revenue increase for the year.
Another factor that increased revenues were one-time repayments from Fannie Mae and Freddie Mac to the U.S. Treasury for money the government infused into the companies during the height of the financial crisis. These payments are indicative of an improving economy and housing market but will not be steady sources of income going forward.
The deficit came in higher than expected at $680 billion, compared with previous estimates of $640 billion. Still, the deficit fell by 37 percent from $1.1 trillion in 2013. And that’s the point: Today’s deficit looks improved only when compared with excessive trillion-dollar-plus levels racked up because of the recession and the massive stimulus.
Tax revenue will continue to chase rising spending and is actually projected to grow faster than spending under the Congressional Budget Office baseline. The short-lived period of falling spending from 2012 and 2013 is coming to an end. Spending is already projected to grow by 69 percent over the decade—even with sequestration in place—while tax revenue would grow by 76 percent. Deficits rise back up to trillion-dollar levels by the end of the decade despite rising revenues.
The ongoing budget conference provides lawmakers with an important opportunity to rein in out-of-control entitlement spending growth. Tax increases should be taken off the agenda as revenues are already growing faster than spending, and spending is 100 percent the driver of higher deficits and debt in the near future.