Tax Payments Take a Big Fall

Federal tax receipts from individuals have plummeted this month compared with a year ago, a drop that may force the government to borrow more money than forecast in coming years, Goldman, Sachs & Co. and Merrill Lynch & Co. said.

The weak economy in 2001 and a dearth of taxable capital gains last year amid Wall Street’s deep bear market have depressed tax revenue more than expected, experts say.

Treasury receipts for the month so far are coming in at a rate 30% below last April’s level, which would be the biggest drop since 1980, Goldman Sachs analysts said Tuesday.

Merrill Lynch economists estimated that tax revenue could fall 15% for the month overall.

“The evidence so far on net individual payments to the Treasury is extremely poor,” said John Youngdahl, a Goldman Sachs economist.

Hence, the firm’s predictions of a $100-billion federal deficit for the current fiscal year and an $80-billion gap in 2003 probably are too low, he said.

The White House Office of Management and Budget has predicted a $106-billion federal deficit for fiscal 2002, which ends Sept. 30, and has since asked for additional spending for homeland security and defense.

A bigger deficit could boost government borrowing over the next two years, deepening concerns among bond investors about an excess supply of securities in an environment when interest rates are likely to be going up, analysts said.

When market rates rise, the prices of older, lower-yielding bonds decline. Heavier federal borrowing could put even more downward pressure on bond prices.

Individual cash tax payments in April 2001 accounted for about 9.5% of what the government took in all year. Many Americans who owe taxes wait until April 15 to file returns and make payments.

Government estimates for this month’s receipts are expected by the end of the month. A Treasury Department spokeswoman declined to comment on the brokerages’ estimates and said it’s too early to make a complete assessment of tax receipts.

A plunge in taxable capital gains in 2001 has hurt the Treasury’s receipts, experts said. Last year, mutual funds distributed $72 billion in capital gains to shareholders, the lowest amount since 1995, according to the Investment Company Institute. Of the total, $16 billion was distributed to individuals who hold funds in taxable accounts, compared with $99 billion in 2000.

Federal tax refund checks to individuals totaled $126.3 billion through last Friday, more than the government had paid out going into the final full week of last year’s tax season, records from the Internal Revenue Service show. The average refund so far this year was $1,954, compared with $1,740 last year.

Taxes also were due Monday from companies that pay them on a monthly basis. Corporate taxes paid were down about 17%, to $17.3 billion, from the same period in 2001, the government said.