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Budget Assumes Tax Receipts to Grow as Fast as Apple’s Sales

President Obama’s budget released Tuesday assumes that over the next five years total federal revenue will increase by the same rate as sales at Apple, the largest technology company in the world. Maybe postal workers can start making iPhones?

Total gross receipts, made up of large increases in corporate and individual tax collections and social security receipts, are estimated to climb more than 65 percent to $3.58 trillion in 2015 from $2.17 trillion this year, according to the Office of Management and Budget.

Nicholas Colas, chief market strategist at BNY ConvergEx Group, made the astute observation in his report to clients this morning that analysts expect Apple’s revenue to climb to $167.2 billion in 2015, from $99.6 billion this fiscal year. That amounts to an increase of about 68 percent.

Uncle Sam taking money out of your wallet
iStockphoto
Uncle Sam taking money out of your wallet

“All the focus on the recently released Federal Budget has been on the spending side of the equation,” said Colas. But “the notion that the budget presented this week will cut the annual spending deficit in half by 2013 is predicated on a strong recovery in receipts—not really as a result of spending cuts. And by ‘strong,’ well, we mean something approaching the realm of Greek myth.”

As Colas goes on to explain, the government’s forecast is ultimately based on its estimated total GDP figure for 2015 and the assumption that Federal receipts will once again equal 19 percent of that total economic output like it did before the financial crisis. The average Federal Receipts-to-GDP ratio has been about 18 percent since 1970, according to Colas, so it’s not unusual to project the country will get back there. It’s just the pace of that recovery expected by this administration that’s in question.

In his State of the Union address and subsequent release of the budget this week, much of the focus has been on the President’s proposal to freeze overall discretionary spending for the next five years, excluding security. This will allow the country to get to a place where it is taking in more than it spends on an annual basis by 2017, claims the budget, but Republicans dispute whether this is possible under the proposed roadmap.

But the better question by Republicans, based on Colas’ analysis, may be to ask the President how the U.S. economy will increase the amount of taxes paid by corporations and individuals at a rate akin to one of the best technology growth stories ever.

On the subject of growing the economy in the short-term, the President in his budget message focused on his tax credits for businesses to hire unemployed workers, his payroll tax cut for individual workers, and the 100 percent expensing of equipment purchases for companies. Longer-term, the President discussed investing in research, technology and infrastructure to keep America as the number one place to do business on the globe.

Apple, which ironically manufactures its products overseas, is expected to grow revenue at such a rate by leveraging the ecosystem of iPhones, iPads, and Mac computers established by CEO Steve Jobs. Analysts cite the recent launch of the iPhone on Verizon’s network, the potential increase in Mac adoption and the yet untapped international sales of its products as the primary growth drivers. (The shares pulled back slightly Thursday on concern about Jobs’ health.)

“My first thought is that the government’s growth rate isn’t as crazy as it sounds, but it is still a stretch,” said Karen Finerman, president of hedge fund Metropolitan Capital Advisors and Fast Money trader.She said that the 60 percent-plus growth rate over five years equates to an 11 percent compound annual growth rate and that the U.S. would be growing revenues off a very low post-crisis base.

In fact, federal government receipts did increase as much as 14.5 percent in one year since 1990, according to Colas, back in 2005. Post-World War II, the record was 31 percent growth in 1951, according to his BNY report.

Still, many investors presented with these budget estimates doubted enough seeds for growth are planted in this economy and enough will power to cut spending instilled in Congress in order to meet these projections.

There is another answer: Steve Jobs in 2012.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.


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Trader disclosure: On Feb 17, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour Owns (AAPL); Seymour Owns (BAC); Seymour Owns (F); Seymour Owns (FCX); Seymour Owns (FXI); Seymour Owns (INTC); Seymour Owns (SBUX); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Terranova Owns (VRTS); Terranova Owns (C); Terranova Owns (UPL); Terranova Owns (GM); Terranova Owns (MS); Terranova Owns (SLXP); Terranova Owns (BAX); Terranova Owns (TEVA); Terranova Owns (CVI); Terranova Owns (RSX); Terranova Owns (SU)’ Terranova Owns (CNQ); Jon Najarian Owns (AMD), Is Short (AMD) Calls; Jon Najarian Owns (AKAM), Is Short (AKAM) Calls; Jon Najarian Owns (CLF), Is Short (CLF) Calls; Jon Najarian Owns (JOYG), Is Short (JOYG) Calls; Jon Najarian Owns (NVDA), Is Short (NVDA) Calls; Jon Najarian Owns (SPWR), Is Short (SPWR) Calls; Jon Najarian Owns (WMB), Is Short (WMB) Calls; Jon Najarian Owns (AKS), Is Short (AKS) Calls; Jon Najarian Owns (ANF), Is Short (ANF) Calls; Jon Najarian Owns (CSTR), Is Short (CSTR) Calls; Jon Najarian Owns (JNPR), Is Short (JNPR) Calls; Jon Najarian Owns (RAX), Is Short (RAX) Calls; Jon Najarian Owns (X), Is Short (X) Calls; Jon Najarian Owns (APA), Is Short (APA) Calls; Jon Najarian Owns (NBR), Is Short (NBR) Calls; Jon Najarian Owns (AKS), Is Short (AKS) Calls

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