Posted on 06/20/2006 5:56:52 AM PDT by blitzgig
Who says you can’t cut taxes, increase spending, and reduce the federal budget deficit all at the same time? That’s what the Bush administration has managed to do. Two decades after then-presidential candidate George H.W. Bush characterized Ronald Reagan’s idea that tax cuts would spur revenue-generating economic growth as “voodoo economics,” the witch doctor is again at work.
When President Bush pledged in 2004 to cut the deficit in half by 2009, critics guffawed. The Boston Globe headlined a story, “Bush’s plan to halve federal deficit seen as unlikely; higher spending, lower taxes don’t mix, analysts say.” “Fanciful,” “laughable” and “all spin,” said the critics.
Well, it turns out that 2009 might be coming early this year. The 2004 deficit had been projected to hit $521 billion, or 4.5 percent of gross domestic product. Bush’s goal was to cut it to 2.25 percent of GDP by 2009—not exactly as stirring a national goal as putting a man on the moon, but one that was nonetheless pronounced unattainable. This year, the deficit could go as low as $300 billion, right around the 2009 goal of 2.5 percent of GDP.
The key to the reduction is revenue growth, which has been stoked by economic growth. Government revenues are up 12.9 percent in the first eight months of this year over the same eight-month period last year—without any tax increases. When individuals, investors, and corporations have more cash in a growing economy, they send more to the federal government in tax payments.
This, despite—or, more accurately, because of—a couple of rounds of Bush tax cuts that were supposed to have been fiscally ruinous. The Bush tax reductions played some role in the economic expansion and therefore are responsible, partly, for the increased revenues. This doesn’t mean that tax cuts “pay for themselves,” as their most fervent advocates say. But they certainly can offset some of their own cost.
In 1999, the Congressional Budget Office was projecting 2006 total federal revenues of nearly $2.4 trillion, prior to anyone foreseeing Bush’s tax cuts. This year, revenue could go as high as nearly $2.4 trillion, even after those tax cuts. In January 2003, prior to Bush’s second round of tax cuts in that year, the CBO guessed revenues would be close to $2.4 trillion this year—again, in the ballpark of where they could be this year.
According to Brian Riedl of the Heritage Foundation, if annual spending increases in the Bush years had been limited to the rate of the Clinton years, roughly 3.3 percent, there would be a federal surplus now. Instead, spending has been growing at 8 percent a year. That demonstrates that the formula for deficit reduction from the 1990s—moderate-spending restraint coupled with higher-than-expected growth-generated revenues—would work again today, if only someone could manage the moderate-spending restraint.
Another similarity from the 1990s is that the revenue surge is driven by high-end earners and corporations. Liberals always rue it when the rich get richer, but when they don’t, the federal fisc tends to be ruined because they are the ones who pay most of the taxes. The deficit climbed unexpectedly in the early Bush years and is declining unexpectedly now, not because the projections for economic growth were wildly off, but because the kind of people who pay the most taxes took a bath early in the decade and are recovering now. Almost 47 percent of income taxes are paid by those making more than $200,000 a year, and they are thriving again. A chunk of the current revenue surge is also from corporate income taxes, which are up 30 percent over last year.
There are limits to voodoo. Today’s fiscal improvements will be overwhelmed by the exploding costs of entitlements just over the horizon. In light of that, we should be maintaining a high-growth, low-tax economy to reap all the benefits of growth, but dutifully restraining entitlements. That’s not sorcery, but just good sense.
Works every time it's tried.
Now if Republicans will quit spending like drunken sailors, we'll be in the black again.
Exactly.
Sure, its impressive what W has managed to do, but what a sadly missed opportunity - we could have cut taxes, and cut spending and had a real legacy to give our children, potentially undoing the "unfunded liability" legacy that the "greatest generation" saddled us with.
John F.Kennedy was a voodoo guy as well. The Kennedy tax cuts reduced the top rates down from a high of 91% to 70%. His tax cuts were pushed through the Congress posthumously, in February of 1964. His treasury department had predicted a 19% drop in revenues, based on the liberal static model view of the economy. As most conservatives understand, the economy is not static, it is subject to incentives. As a result of the Kennedy tax cuts, the economy took off, and rather than a 19% drop in revenues, the economy by 1966 saw revenues mushroom over 17%. The largest increase in revenues took place in the over $1,000,000+ income class which saw an whopping 85% increase in revenue production.
The liberal/socialists know tax cuts work, but they'd rather burn the money than give it back to the productive elements of society.
Spending has been a big problem. I hate what Congress has done on Farm subsidies, Energy and earmarking. The Alternative GOP budget that was pronounced dead on arrival provided a way to balance the budget, but not enough statesman are ready to face reality.
We need to remind the GOP that the Contract with American was the basis for their coming to power in Congress.
Why Lincoln? I consider him a tyrant who smashed states' rights.
There are easily half a dozen men who were better presidents than Lincoln:
Washington
Reagan
T Roosevelt
Calvin Coolidge
Jefferson
Truman
I would have to agree with that. Behind Washington and Lincoln, Reagan ranks right up there.
You can do anything as long as you control all the gov't bureaucracies that generate the statistics. Bush learned this from Clinton.
Let me correct it for you.;>)
Washington
John Adams
Jefferson
Reagan
Calvin Coolidge
Nice pic!
William McKinley is the father of modern day Republicanism. Surely he should be up there. One of the most overlooked Presidents ever.
No love for James Polk? The guys in my top 5.
Well sure, because by succeeding so much, the productive elements are making the non-productive elements feel bad. We can't have that. ;)
You are so right. I'm convinced that most old tax hikes were more punitive than what was considered "necessary" for their worthless social programs. The old 91% tax rate on wealthy individuals proved it. The usurious tax rates enacted by the Dem controlled congresses have cost average Americans trillions of dollars when we consider the stimulating effect of low taxes on production and capital gains.
G-man I just toured the Polk House in Columbia Tennessee 3 months ago. You are correct sir, Mr.Polk should be in the top five of the greatest Presidents in US History. The only Speaker of the House to become POTUS, Polk was Mr. Manifest Destiny. He settled the dispute with Great Britain peacefully, he absorbed California and Texas in his war with Mexico. Polk added 1.2 million square miles, increasing the United States more that 60%. Polk was a dynamic leader that accomplished everything he set out to do.
Yes ... in ONE TERM too! (And then he died 3 months after leaving office)
If you have to ask about Lincoln, and invoke such neo-Confederate claptrap, there is no need to discuss matters further. Lincoln would be #1, if not for Washington, end of story.
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