RECEIPTS

    The current estimates of receipts for 2002 and 2003 are below the February budget estimates by $78.7 billion and $19.1 billion, respectively. The current estimates are below the February budget estimates by smaller amounts in 2004, 2006 and 2007, and above the February budget estimate in 2005, resulting in a net downward revision in receipts of $21.9 billion over the 5-year period, 2003 through 2007. These changes are the net effect of enactment of the Job Creation and Worker Assistance Act (Economic Stimulus Bill); modification of the Administration's proposals to reflect enactment of the Job Creation and Worker Assistance Act, the Administration's plan to aid small businesses, and other new initiatives announced since February; revised economic projections; and technical reestimates.

    The Job Creation and Worker Assistance Act, which was signed by President Bush on March 9, 2002, provides $57.8 billion in tax relief over the 6-year period, 2002 through 2007. The major tax relief provided in this Act allows businesses to expense 30 percent of the cost of new capital assets acquired after September 10, 2001 and before September 11, 2004, in addition to the normal depreciation deduction allowed on the remaining cost basis; extends from two years to five years the carryback period for net operating losses generated in taxable years 2001 and 2002; temporarily extends a number of tax reductions that had expired on December 31, 2001; and provides a number of tax incentives to help an area of New York City referred to as the Liberty Zone recover from the September 11th terrorist attacks. Because the tax relief provided in this Act is less than the total tax relief proposed by President Bush in the budget, receipts are increased relative to the February budget proposals by $182.3 billion over the six years, 2002 through 2007.

    The Administration's policy initiatives (see Table 11) are estimated to reduce receipts by $5.8 billion in 2003 and $86.9 billion over the 5-year period, 2003 through 2007. These initiatives include permanent extension of the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 that sunset on December 31, 2010, and tax incentives for charitable giving, education, the disabled, health care, farmers, the environment, energy conservation and alternative fuels, which were proposed in the February budget. They also include Administration proposals announced since February to: (1) combat abusive tax avoidance transactions; (2) limit related party interest deductions; (3) establish a uniform definition of a child; and (4) aid small businesses by allowing firms that invest less than $325,000 ($200,000 under current law) annually to expense up to $40,000 ($24,000 for 2002 and $25,000 for 2003 under current law) of the first-year cost of new capital assets.

    Revised economic projections and technical adjustments reduce receipts by $90.8 billion in 2002 and $50.5 billion in 2003, relative to the February budget. These factors reduce receipts by declining amounts in 2004 through 2007, resulting in a net reduction in receipts of $104.5 billion over the five years, 2003 through 2007. Shortfalls in individual and corporation income tax collections account for most of the downward adjustment in 2002 receipts. These shortfalls in collections are attributable to significantly weaker-than-estimated individual and corporation income tax liability for tax years 2001 and 2002, as reflected in lower-than-expected final payments and higher-than-expected refunds of payments of 2001 tax liability, and lower-than-expected estimated and withheld payments of 2002 liability. A significant portion of the shortfall in 2002 receipts collections is expected to be explained by revisions to components of national income that will be released by the Bureau of Economic Analysis on July 31, 2002.