U.S. corporate tax revenue fell in the third quarter, signaling the end of a windfall that helped President George W. Bush narrow the budget deficit in the past three years, according to Bank of America Securities LLC.
Corporate tax receipts dropped 11.3 percent in the third quarter from a year ago, the first decline since 2003, according to an analysis of the Treasury’s daily budget statements by economists at Bank of America in New York.
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The decline in corporate-tax revenue was expected to cloud Bush’s latest budget figures. White House budget chief Jim Nussle said Oct. 2 the deficit in the fiscal year that ended Sept. 30 probably fell to between $165 billion and $170 billion.
“This third-quarter decline in corporate tax receipts may point to a drop in third-quarter economy-wide corporate profits,” Bank of America analysts wrote. Michael Cloherty, head of Treasury and agency strategy at Bank of America in New York and lead author of the report, wasn’t available to comment.
“The deficit is coming down – that’s the good news,” Nussle, director of the Office of Management and Budget, said in an interview. “If the economy continues to grow and we can hold the line on spending and taxes, you will continue to see that budget come down.”
Almost $2 trillion in tax cuts and the cost of waging wars in Afghanistan and Iraq wiped out the surplus Bush inherited when he took office. The deficit swelled to a record $413 billion in 2004.
The Congressional Budget Office also flagged weaker revenue from business taxes when it predicted a fiscal 2007 deficit of $161 billion in an Oct. 5 report.
Revenue rose 6.7 percent, slower than the double-digit increases of the previous two years, the CBO said. For the fiscal year that started Oct. 1, 2006, corporate income-tax receipts grew by 5 percent, which the agency called a “substantial slowdown” from the 39 percent average increase over the prior three years. •
