Posted on 07/10/2006 4:13:28 PM PDT by Western Civ 4ever
This week, the White House will revise its fiscal year 2006 budget deficit estimate to roughly $300 billion, a significant reduction from its January forecast of $423 billion. This will continue the White House's pattern of very conservative estimates.
Our calculations suggest that the federal budget deficit this year will be approximately $260 billion. This is down from $318 billion in FY-05 and $413 billion in FY-04.
Strong gains in tax receipts have overwhelmed increased federal spending. Congressional Budget Office (CBO) data show that federal tax receipts during the nine months ending in June were 12.8% above the same period in FY-05. Withheld income taxes increased 9% in June from last year; non-withheld income tax payments surged by 20%, while corporate tax receipts grew by 17%.
If federal receipts continue to grow in a similar fashion during the final three months of this fiscal year, they will climb to an all-time high of $2.4 trillion dollars, $275 billion above last year, $400 billion more than in 2000, and equal to 18.5% of GDP.
Federal spending is on track to increase 9% this year, and will end the year at 20.7% of GDP, up sharply from the 18.4% share in 2000. If federal spending had remained at 18.4% of GDP this year, the US would have recorded a small surplus of $21 billion.
It has become popular to say that, "tax cuts do not pay for themselves." In fact, Henry Paulson, who will be sworn in today as the 74th US Treasury Secretary, was all but forced to say this in his confirmation hearing last month. The problem is that it is not clear whether this statement actually means anything.
In a static world, tax cuts do not pay for themselves. But the world is not static. As Secretary Paulson said at his Congressional hearing, tax changes affect people's behavior. As a result, tax changes alter the course of the economy. To assume otherwise is naïve. Equally as important is the fact that different types of tax cuts impact the economy in different ways.
In 2001, most reductions in marginal income tax rates were phased-in over many years. But, if people know that tax rates will be lower in future years they will push as much economic activity as they can into those lower tax years. This resulted in anemic economic growth (and declining tax revenue) during 2001, 2002 and early 2003 even though the Fed was cutting interest rates.
The 2003 tax cut ended the phase-in, accelerated the tax cuts and reduced tax rates on qualified dividends and long-term capital gains. This caused an immediate acceleration in business investment and tax revenues surged. In fact, inflation-adjusted tax revenues have grown more than 10% annually over the past two years; a feat rarely accomplished in US economic history.
As a share of GDP, tax receipts are still well below the 1998-2000 average of 20.3%. But those were abnormal years. Since 1930, there have only been 19 years in which the tax share of GDP was at or above 18.5%, and in the past 20 years, tax receipts have averaged 18.3% of GDP. This means tax receipts in 2006 will be above historical norms.
Since the tax cut was passed in May 2003, US GDP has expanded by more than 20%, or roughly $2.2 trillion. To put this in perspective, we have added more to GDP in the past three years than an entire China (current estimate of $1.9 trillion in annual GDP). In the three years before the tax cut, GDP in the US grew just 10.4%.
Most importantly, tax revenue trends suggest that government statistics are underestimating economic growth. People and companies do not pay taxes on income or profits they do not earn. There is no sign of a slowdown in the budget data.
Now if we can just get Congress to CUT SPENDING maybe we can finally have a surplus. But somehow I don't see that happening. I always thought that a bill or new law that would force congress to cut the budget by say 5% a year would be reasonable and put us into a healthy surplus in just a few years. Ahh, how sweet that would be.
When was our last surplus? Were there any surplus budgets during the Reagan years, I seem to recall there was one.
It's long past time for congress to make the Bush package of tax cuts permanent, IMO.
Eat your hearts out liberal pukes!
The liberal pukes don't like anything that works. These idiots will fight against anthing that works if they are not in charge. We have to keep fighting and make things WORK.
Nope. Not until Clinton was in office, and Republicans controlled Congress.
Just think what our economy would be like with less government interference as well!
Ah, yes, but weren't many of the policies of the Reagan era responsible for those surpluses?
I agree with tax cuts, and a govt that spends maybe 1/4 of what we do now, but unless this tendency of govt to grow and outspend any amount of monies funneled to it by the producers(like me and you), I see a very dark near future. I too celebrate tax cuts, but why not hold their feet to the fire, and get them to cut govt down to Constitutional limits?
"I don't see the magic in 3,000,000,000,000 in added debt, over 2,000,000,000 yearly budgets just to stimulate the economy."
What you've got to understand is we the people got the tax cuts and the people with money spent more money and the left wing whackos spent all they can got. All the pork fat is the problem. We got the inside the beltway crowd more money and we have to control them.
Jeremiad, is that you?
Hmmmmmm....if people knew prices will be lower in future years will they push as much economic activity as they can into those lower price years?
You still want to claim that a general deflation would not really be harmful to anyone who is not in debt since the price of everything would go down together?
If you insist on clouding the issue I will know that you are simply an evader.
Only one minor problem: http://www.publicdebt.treas.gov/opd/opdpenny.htm.
If the public debt was going down, okay. But it is not. The President and Congress are spending money like it is their avenue to obtain longer life. At this rate, they will never die.
Of course, who else would go on a Jeremiad, but Jeremiah???
LOL...thanks for taking it the right way...I just couldn't resist!
Yes, Clinton and other Democrats hopped on the Reagan bandwagon. GWB took the wheels off the bandwagon and set it on fire.
Then why is the government still running a $260 billion deficit on top of the huge deficits already racked up under the "no veto new tone tone in Washington?"
I wonder if they are factoring in the Federal Reserve's badly desired recession.
When Reagan took office, we were in the "theoretically impossible" stagflation which came to roost under Carter but which, realistically, was a product of not only Carter but Democratic politics generally with help from Ford and even Nixon.Before the Kemp-Roth revolution, Democrats were in the catbird seat. Democrats were in favor of irresponsible spending, and Republicans were in favor of a balanced budget. The Democratic majority would vote for high spending, and then let the Republican vote for the tax increases to almost pay for it. So who looked good and who looked bad in that scenario?
It was Jack Kemp's insight that tax rates were so high that increases in tax rate stifled the economy so strongly that the result was actually less revenue than you would have had with no change in tax rate. He argued for tax cuts through the Ford and Carter Administrations, but he was pretty much a voice in the wilderness until Reagan adopted the Kemp-Roth tax cut as his own during the 1980 campaign.
When Reagan was shot it gave him public sympathy and helped him get Kemp-Roth passed, thank God. There was a recession early in the Reagan Administration, and Republicans suffered some attrition in the 1982 congressional election, but after the tax cut finally started working the economy came roaring back - in 1988 yielding double the revenue obtained during the recession year of 1982.
There was a mild recession in 1992, just enough for "objective journalism" to get Clinton elected, but basically the secular trend of the Reagan recovery is with us yet.
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