It’s pretty straightforward….
New tax data from the Internal Revenue service shows that in 2009, incomes fell, unemployment claims rose, and the U.S. economy shed nearly two million taxpayers. And of the 235,413 taxpayers who earned $1 million or more in 2009, 1,470 of them paid no taxes. According to the data, the average income for American taxpayers fell to $54,283 –a drop of $3,516, or about 6.1 percent, between 2008 and 2009. Not only that, but the overall number of taxpayers –that is, individuals or married couples filing with the IRS –fell by almost two million. “What you’re seeing is the devastation of the massive loss of jobs and the effects of the real recession on real Americans,” said Ed Kleinbard, a law professor at the University of Southern California.
This is why revenue dropped off by $500B in 2009. You don’t ever see people complaining about deficits noting the effect that tax cuts have on revenues. However, those effects are pretty much exactly the same as a recession…you greatly reduce the amount of income subject to taxation.
When you get both at the same time (historically low tax rates coupled with a deep recession) it causes HUGE drops in revenue, yet somehow that has been translated into a “spending” problem by the same people that pushed the tax cuts.