While it seems like most of what we read recently about the economy has been negative, there was one good news story, and that will be discussed. There were lots of candidates for the bad and ugly, and I have chosen two. Read on to find the winners (or losers).

The good: Tax revenues surge

There has been an unprecedented surge in tax revenues this fiscal year. According to the Congressional Budget Office, for the fiscal year ending on Sept. 30 of this year, individual income tax revenues are projected to reach $2.6 trillion dollars. That amount represents 10.6% of GDP and it is up from 9.1% last year. More importantly, it is the highest level of revenues and percent of GDP in the history of the tax, which has been tracked for the last 109 years.

There are several reasons for this, although the level has surprised policy makers. Clearly, the economic boom immediately following the pandemic shutdown has contributed strongly to this phenomenon. Secondly, the stimulus payments in the form of checks and tax credits has created an unexpected source of revenue for a large segment of the population. This will not be a recurring issue as stimulus payments have stopped, but this was not good policy as the government borrowed money to pay the stimulus and that stimulus was taxed as people spent the money on goods and services. Thirdly, inflation has caused larger than normal wage increases, which in turn have raised people’s taxable income. Fourthly, with talk of potential tax hikes, people may have accelerated income into the 2022 taxable year to avoid higher taxes in the future. Fifthly, the booming stock market last year may have caused people to take profits and inflate income.

Whatever the reasons, this is really good news. The problem with our federal deficits is clearly on the spending side, and spending was egregious over the past couple of years given the various stimulus programs passed by the government. Perhaps one reason this good news has not been trumpeted more is that the current administration is still talking about a potential tax increase. We really need to address the spending side to reign in the deficits.

The bad: The Social Security Trust Fund

The annual report released by the trustees of the Social Security Trust Funds showed that bolstered by the increase in payroll taxes as referenced in the previous section, the program’s combined reserves will not be depleted until 2035, one year longer than last year’s report. So, the stark reality of the nation’s retirement plan running out of money is now 13 years from now, not 12. Once the reserves run out, revenues from payroll taxes are projected to cover about 80% of projected needs. Social Securities costs exceeded its revenues in 2021, a pattern the trustees see continuing in future years. The program faces greater problems ahead as the large, aging baby boomer group is largely funded by a population that was characterized by decline in fertility rates. Major structural problems exist and lawmakers have ignored the reform that the system needs to insure its long term viability.

The ugly: Inflation

After a somewhat lower CPI reading in April, May’s CPI number rose to 8.6%. Inflation is insidiously eroding our standard of living. Yes, all of us are having our standard of living reduced as our sources of income, whatever they may be, are outstripped by this plague. The Fed and the Administration have largely been caught off guard by the intensity and prevalence of the problem. Recent readings showed the following increases that you and I are paying: Gasoline up 43.6%; Food up 10.1% (with many items up significant double digits); Airfares up 33.3%; Energy up 30.3%, Used cars and trucks up 22.7%; New cars and trucks up 12.6%; and Electricity up 11%. I experienced the inflation of the 70s and early 80s and it was no fun. To correct that problem, the Fed finally let interest rates float freely and rates rose above the level of inflation and caused a serious recession. What is going to happen this time to correct the problem? I don’t know, but the sooner the problem is addressed the better. The situation is not sustainable and probably requires some economic malaise to be corrected. In the meantime, inflation rages on.

Jeff MacLellan is retired from Landmark Bank. He spent 37 years in banking, and has been tracking local economic indicators since he came to Columbia in 1987.

This article originally appeared on Columbia Daily Tribune: The good, bad and ugly economically