IMPEACH BUSH

WASHINGTON -- With turmoil rocking financial markets and housing woes slowing the economy, corporate tax revenues are falling and leaving big holes in the federal budget.

The Treasury Department reported Monday that corporate income-tax revenue over the first seven months of the fiscal year, which began Oct. 1, was $171.1 billion, 14.7% lower than during the same period a year earlier. Meantime, government outlays rose 7.3%, to $1.7 trillion, and the federal deficit ballooned to $152 billion, 88% higher than the same period last fiscal year.

"The budget picture is growing darker and is set to get much darker in the next few months, as the impact of the tax rebates hit the government's bottom line," said Mark Zandi, chief economist at Moody's Economy.com, a research firm. The Internal Revenue Service last month began delivering payments to taxpayers in a bid to stimulate the economy, but the lion's share of those payments will be made in May, June and July.

The nonpartisan Congressional Budget Office predicts the federal deficit for the entire fiscal year could top $400 billion, including new spending on the wars in Iraq and Afghanistan.

One slight bright spot is that while growth in revenue from individual income taxes has slowed, it has held up better than expected. That includes taxes paid by individuals on April 15, which reflect economic activity in calendar 2007, and those withheld monthly by employers, which reflect current business trends. Overall individual income-tax receipts reached $748 billion over the first seven months of fiscal 2008, up 6% from the period in fiscal 2007.

For 10 consecutive months, however, federal receipts from corporate taxes have lagged behind the previous year's revenue, a reflection of the sharp slowdown in corporate profitability.

Write to Michael M. Phillips at michael.phillips@wsj.com