Today the Congressional Budget Office released their budget and economic outlook report. Since last August, the outlook for the ten-year budget deficit has deteriorated by $1.4 trillion (see Table A-1 on pages 106-7). Note that more than 100% of the deterioration is due to revenue losses; projected federal revenues over the (fiscal years) 2011-20 period declined by $1.9 trillion–a net $713 billion due to recent legislation (the lame-duck deficit-financed tax cuts), but a larger $958 billion due to negative revisions to the economic forecast and the interaction of those economic changes with our less-than-adequately-robust-or-resilient income tax base.
And as the CBO highlights in their revenue chapter (see the box on pages 96-97 of the report), reductions in revenue don’t usually correspond to declines in the size of government, because most “tax cuts” are of the “tax expenditure” variety that are more appropriately characterized as spending programs in disguise. As CBO explains it:
["Tax expenditures"] are similar in some ways to government spending. Like spending programs, tax expenditures provide financial assistance to particular activities, entities, or groups of people. They are more similar to entitlement programs than to discretionary spending because they are not subject to annual appropriations and any person or entity that meets the requirements can receive the benefits.