The total decline in fiscal posture for 2003 alone comes to around $500 billion. Compare this to the size of the economic decline...the total decline from the beginning of 2001 to the end of 2002 might be about 2 to 3 percentage points of GDP. With an economy of a little more than $10 trillion, this implies that the nation's income is about $200 billion to $300 billion below potential in 2003.
Steuerle points out that what economists used to call "automatic stabilizers" have produced even larger changes in the Budget than has discretionary stimulus.
Here we find another $286 billion, largely in lost revenues, due to reductions in such items as taxes on wages, capital gains realizations, and exercises of stock options.
Given Steuerle's estimate that the economic shortfall is $200 to $300 billion, what he is saying is that the elasticity of Federal revenues with respect to economic activity is close to one! Assuming that his arithmetic is correct, this must be due to a large swing in capital gains tax realizations.
In fact, I am inclined to think that the importance of changes in stock market valuations and wealth in the current downturn means that comparing the change in the Budget to the change in GDP is misleading. Regardless of the amount of stimulus that has been applied to the economy, the unemployment rate is high and inflation is low. To me, that says that we have not yet had enough stimulus.