Returning to our long-standing concern about the 5-7 percent, five-year projections of federal revenue growth, we hereby put down a marker, in light of BEA's GDP growth estimate of 1.3 percent for the first quarter of 2007, released today.

We will return to the question of the plausibility of the 5-7 percent revenue growth figures offered by the president, Congress, and even the CBO in about three weeks' time, when the CBO issues its next Monthly Budget Review.

To follow up Dana's post about the NYT's obit for supply-side economics, I want point you to a couple of related posts.

First, Kevin Drum @ Washington Monthly:

I got to wondering if serious supply-siders got tired of having their entire school of thought made into a laughingstock by today's endless parade of yahoos blathering mindlessly about how tax cuts always and everywhere magically increase revenue. Surely they find such childishness embarrassing?

And there's a fascinating (for econ geeks like myself) back and forth between Bruce Bartlett and Mark Thoma in the comments threat on this Mark Thoma post. Thoma's post is also a good summary of macroeconomic stabilization policy debate of the past 30 years. Check it out if you want to wonder into the wild and crazy world of economics.

The CBO has released April's Monthly Budget Review. The short version: Revenues are higher this March than they were a year ago, thanks mostly to rising income and payroll taxes. The summary paragraph from the report:

The federal government recorded a deficit of $257 billion for the first six months of fiscal year 2007, CBO estimates, $46 billion less than the shortfall incurred during the same period in 2006. Revenues have risen by 8 percent in the first half of the year, whereas outlays have grown by about 3 percent.

We've remarked before on what appear to be overly optimistic revenue growth rate projections by the President and Congress. Both President Bush's proposed FY 2008 budget (which assumes extension of the 2001 and 2003 Bush tax cuts) and in the House and Senate budget resolutions (which do not) project 5-7 percent annual revenue growth through 2012.

A column in last week's New York Times points out that federal revenue jumped 12.7 percent in 2005 and 11.8 percent in 2006. But it adds a cautionary note about future receipts:

[I]n the last two quarters of 2006, taxes collected by the states rose 4.6 percent and 4.3 percent, respectively, from the comparable 2005 quarters. Adjusted for inflation, however, revenues barely budged. Those second-half growth rates, the weakest since 2003, represented sharp declines from the near-double-digit rates in the first half. (emph. added)

How do trends in federal vs. state revenue relate and what conclusions can be drawn from the current contrast in the condition of the coffers?

Some analysts say the state data, which more closely mirrors the experience and habits of typical consumers, can be an important coincident indicator. "If you were to see a significant decline in the amount of state sales taxes, it would be a good indication that the economy is struggling," said Bert Waisanen, fiscal analyst at the National Conference of State Legislatures... At the federal level, however, growth in tax revenue is more likely to be a lagging indicator.