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Letter from Peter R. Orszag, Director to Kent Conrad regarding revenues since 2003 1 (May 2007)

handle is hein.congrec/cbo10329 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE Peter R. Orszag, Director U.S. Congress Washington, DC 20515 May 18, 2007 The Honorable Kent Conrad Chairman Committee on the Budget United States Senate Washington, DC 20510 Dear Mr. Chairman: In response to your letter of May 11, 2007, the Congressional Budget Office (CBO) has reviewed the available data and analyzed the sources and underlying causes of the growth in revenues since 2003. This analysis shows that the overall increase in revenues as a share of gross domestic product (GDP) since 2003 is disproportionately accounted for by increases in corporate income tax revenues. Growth in Federal Tax Revenues From 2003 to 2006 Total federal revenues grew by about $625 billion, or 35 percent, between fiscal year 2003 and fiscal year 2006. CBO's analysis of that increase in revenues since 2003 is necessarily preliminary because relevant data are not yet fully available. CBO examined the available data using the commonly employed method of analyzing the sources of revenue growth as a percentage of GDP. Had revenues grown at the same rate as the overall economy between 2003 and 2006, federal receipts would have increased by only $373 billion. The other $252 billion of the actual increase in revenues represents growth in excess of GDP growth. As a result, receipts as a share of GDP rose from 16.5 percent in 2003 to 18.4 percent in 2006, an increase of 1.9 percentage points (see Table 1, attached). Sources of Growth in Tax Revenues That increase of 1.9 percentage point of GDP can be traced to changes in different types of revenues (see Table 2). The bulk of the revenue increase was associated with corporate income taxes: Revenues from corporate income taxes rose from 1.2 percent of GDP in 2003 (their lowest level since 1983) to 2.7 percent in 2006 (their highest level since 1978). That increase of 1.5 percentage points of GDP in corporate income tax revenues accounts for the bulk of the overall 1.9 percentage- point rise in revenues. Revenues from individual income taxes increased 0.6 percentage points, from 7.3 percent of GDP in 2003 to 8.0 percent in 2006. And revenues from taxes other than corporate and individual income taxes were relatively stable over the period from 2003 to 2006, slipping 0.2 percentage points, from 7.9 percent to 7.7 percent of GDP. www.cbo.gov

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