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Unusual Revenue Fall

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03/28/2004
In comparison with 2000 Federal Government revenue fell by 20.9% in early 2004. Most experts regard this fall as being due to the Bush administration's cut in taxes. However, our analysis disagrees with this. For instance, the cut in the tax rate was much more pronounced in 1963 and in 1981 yet government revenue didn't fall then. It seems to us that the present decline in government revenue could be indicative that the "taxable pie" is in difficulty.
For instance, notwithstanding that officially the US economy has been in a recovery phase since November 2001 employment has continued to stagnate. Furthermore the growth momentum of personal income plunged to 3% in 2003 from 8% in 2000. We suggest that this unusual weakness is indicative that the pool of real savings has weakened significantly. We suspect that since 2001 the Fed's loose monetary policy coupled with ever growing government outlays, has severely damaged the pool of real savings and hence diminished the prospects for a sustainable economic recovery. Our latest monetary indicator raises the likelihood that the current so called rebound of some key economic indicators may be approaching their peaks. Meanwhile the Fed's historically low interest rates have continued to further boost the real estate market thereby depleting further the pool of real savings.

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