Michael Perelman wrote: >Some time ago, I asked Max S. to what extent the surplus depended on >capital gains in the stock market. He dismissed my concern. > >I just looked at Uchitelle's article in Sunday's times. He says, >"Bluntly put, if stock prices fall sharply, the budget surplus >disappears." > >I rely on Max for such information. Could he be wrong? Impossible... I've got some unpublished estimates that Robert McIntyre of Citizens for Tax Justice did of the capgain contribution to federal revenues - around $50-75 billion a year over the last 3-4 years, or 3-4% of federal revenues, but a very large portion of the surplus. But they're unlikely to go to 0, even in a bear market. The CBO's latest Economic & Budget Outlook has a section on capgains estimates; they say one standard deviation in the projections is about $20 billion at current levels, and departures of more than 1 SD in either direction for two consecutive years are rare and unlikely, or so they say. Of more importance, the following section in the CBO analysis says, is the growth in income of top-bracket taxpayers; since they're taxed at a higher rate than anyone else, federal revenues have been growing much faster than personal income. The effective tax rate on personal income has, therefore, been rising about 1 percentage point a year throughout the 1990s; if this were to continue (that is, if the rich were to continue getting richer), this would make a difference of $152 billion in federal revenues in 2009 - compared to just $17 billion if capgains came in 1 SD above the projections. The CBO projects surpluses even in what they call a "financial turmoil scenario," but this implies a growth recession (1/2-1% of GDP) and not a deep swoon. Doug
