The title of this post was taken from the title of this Investor’s Business Daily article which states:
Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 — three years early.
Tax revenues are running $176 billion, or 12.9%, over last year, the Treasury Department said Monday. The Congressional Budget Office said receipts have risen faster over the first eight months of fiscal ’06 than in any other such period over the past 25 years — except for last year’s 15.5% jump.
The 2006 deficit through May was $227 billion, down from $273 billion at this time last year. Spending is up $130 billion, or 7.9%.
The CBO forecast in May that the 2006 deficit could fall as low as $300 billion. Michael Englund, chief economist of Action Economics, has long expected a deficit of about $270 billion this year. Now he thinks there’s a chance the “remarkable strength in receipts” will push the deficit even lower.
With the economy topping $13 trillion this year, a $270 billion deficit would equal less than 2.1% of GDP, easily beating the president’s 2.25% goal. Bush made his vow when the White House had a dour 2004 deficit forecast of 4.5% of GDP, or $521 billion. The actual ’04 deficit came in at $412 billion, or 3.5% of GDP, before falling to $318 billion, or 2.6% of GDP, in 2005.
A CBO analysis last week noted that withheld individual income and payroll taxes are up 7.6% from a year ago, with the gains picking up in recent months.
“Those gains suggest solid growth in wages and salaries in the national economy,” CBO said.
While gains are broad, those at higher-income levels are enjoying bigger salary hikes. Because they pay higher rates, federal tax revenues soar when they do well.
Those making over $200,000 now pay 46.6% of total income taxes, presidential adviser Karl Rove recently said. That’s up from 40.5% — despite Bush’s tax cuts.
Nonwithheld income tax receipts are up about 20% vs. a year ago. That may reflect year-end bonuses and capital gains.
Corporate income taxes are up about 30% from last year’s pace.
In response to the line, “despite Bush’s tax cuts” I would have pointed out that more likely it is because of Bush’s tax cuts. It has been shown time and time again that cuts in tax rates result in increased growth, which in turn, results in increased tax revenue. It happened when John Kennedy cut taxes, and again when Ronald Reagan did. The fact that those on the Left, and those in the media, refuse time and time again to acknowledge that economic truth is very telling. If they did acknowledge it, politicians could no longer bluster about how we were going to “pay for” a tax cut. Politicians might even be forced to look at cutting spending as a way to balance budgets instead of raising taxes.
Thanks to Betsy Newmark for posting a link to and excerpt from the article above. On such a big news day as Tuesday was I expect stories like this one did not get much attention. It would not have gotten much anyway, though, judging by the attention good economic news has received over the past few years. Meg Kreikemeierwrote an excellent piece earlier this year about how miserably the good economic news has been reported.
So why with all the good economic news to report, do so many still believe we are in the midst of a faltering economy? In my column at the Examiner yesterday I quoted from a John Leo piece I read at Townhall. Leo said “This may not be breaking news, but if an assertion reflects a widely shared emotion, it can make great headway in this culture without any need to prove its truth. ” That has certainly been the case with the economy. How many politicians and others do you suppose have blamed the deficit on the Bush tax cuts, when they have all the numbers in front of them saying otherwise? Showing (even with hard figures) that the tax cuts have resulted in record increases in revenue just isn’t enough to convince those who have a vested interest in ignoring the truth.
Update: JB supplied this Heritage link to additional information on tax cuts and tax revenue.
Forgot to point out that the Investor’s Business Daily article in fact remarks that under the present conditions, annual deficits of $600B to $800B are anticipated.
This post dishonestly ignores that part
McCain – I think you are misinterpreting your facts. You are taking federal revenue in isolation without taking into account the general macroeconomic climate.
The error you are making is assuming that tax rates vs revenue is an inelastic relationship and due to destortions (applications of various credits and write offs) in the tax laws cyclical industries have a disporportionate impact on revenues.
Yes Federal revenue’s fell when you compare 2001 to 2002. However the same is true with 38 of the 50 states. These states too had revenue drops. For example while federal revenue dropped by 5%, both CA and MA tax revenues dropped by 14%.
The general macroecomonic state of the counrry was a recession (which historically results in lower tax revenues).
Of the 12 states where tax revenue was flat or increase. 7 states had reduced their effective tax rates (comparing 2002 vs 2001 tax rates) In two states the rates remained the same, and in 3 states the tax rates went up.
“It has been shown time and time again that cuts in tax rates result in increased growth, which in turn, results in increased tax revenue.”
Sources please? Can you cite any economic study that uses actual economic data, as opposed to wishes and horses, that supports your statement? Because I can find dozens that refute it.