The New York Times finds what they call a “surprising” increase in tax revenues this year. And where is this revenue coming from?:
An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.
On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year’s levels and that the deficit will be about $100 billion less than what they projected six months ago. The rising tide in tax payments has been building for months, but the increased scale is surprising even seasoned budget analysts and making it easier for both the administration and Congress to finesse the big run-up in spending over the past year.
Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.
The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big increase in individual taxes on stock market profits and executive bonuses.
Since 2003 they say? I wonder what might have kicked that off…
Of course, the Times can’t help but try to give everything an anti-Administration spin, as John Hinderaker astutely observes:
Note, first, that the partisan divide is acknowledged, but resolved on the side of the Democrats: “many independent budget analysts” agree with the Democrats, none, apparently, with the Republicans. Who are they? Who knows? But note the claim that the Times attributes to the Democrats and their “independent analysts”: overall revenues have “barely climbed back to the levels reached in 2000.” This assertion is ridiculous.
Hinderaker points to this chart which makes it clear that revenues are well above their 2000 levels. The Times has a pathological need to ensure that no good economic news gets reported straight – they can’t help but inject their own partisan spin into the matter. The fact is that it is not mere coincidence that tax revenues are booming, especially in sectors that benefitted from the 2003 tax cuts. Tax cuts are not revenue negative – they encourage economic growth with raise revenue. This just illustrates that we were on the wrong side of the Laffer Curve prior to the 2003 marginal rate reductions.
The Times laments that tax revenues haven’t increased at the rate of economic growth, which is natural since the rate of economic growth has been a strong 11.4% in constant 2000 dollars during the Bush term. Tax revenues tend to be a lagging indicator – this surge in revenue comes from the economic advancements made in the prior year, the groundwork for which was laid prior to that. So long as the economic growth of the US economy remains steady, and there’s no reason to believe that it will not, the rise in tax receipts could continue. Then again, if Americans do something harmful – like electing Democrats in the next round of elections – that rate of strong growth could evaporate.
The biggest challenge we face is not raising revenue, it’s lowering spending. The Bush Administration needs to reform the fiscal timebombs of Social Security and Medicare, reduce wasteful spending on earmarks, and reduce the rate of growth for government. We may be seeing the deficit slowly play down, but that won’t last so long as Congress has an unending appetite for pork and the Administration isn’t willing to put them on a diet. Bush’s tax plans may be creating a more positive economic future for this country, but his record on spending is abysmal. Ultimately the gains made by one can be undone by another if both are not kept in check.
Had Clinton era tax rates been maintained, we’d have a surplus right now. I see zero evidence that the lowering of tax rates by Bush has had any impact at all on economic growth, which didn’t start to tick impressively upward until late 2004, three years after the first round of tax cuts. While Bush certainly has something to crow about, fairly or not, with the diminishing deficit numbers, we’re still facing a double-edged sword all but certain to send the deficit numbers the other direction. First, most economists are predicting a slowdown in economic growth in the months ahead, fueled by inflation and declining consumer confidence. With economic growth shrinking, revenues will shrink correspondingly. Secondly, the Bush tax cuts are backloaded, meaning most of the Treasury theft is yet to come. Heading into the 2008 elections, I’d be very surprised if the Republicans still have Bush’s shrinking deficit to run on.
And one more thing. “Not hardly” is a self-contradicting statement. “Surpising? Hardly!” would have been the grammatically appropriate term for what you were going for. “Surprising? Not Hardly!” cancels itself out and means you were indeed surprised by the decline of the budget deficit.
Not hardly.
The economy was already beginning to decline before Bush took office in 2001. The September 11 attacks and the collapse of Enron just made it all the worse.
Bush’s biggest round of tax cuts was in 2003. It takes at least a year for changes in marginal rates to have an effect.
Of course, everyone’s money belongs to the state, tovarisch… actually keeping what you earn is “stealing” from the treasury…
You don’t get out much, do you?
“Not hardly.”
Not hardly? Ah, good. Then we’re in agreement that if Clinton era tax rates had been maintained, we’d have a surplus right now.
“The economy was already beginning to decline before Bush took office in 2001. The September 11 attacks and the collapse of Enron just made it all the worse.”
Sounds like your contention is that any and all recessions can be averted with tax cuts. How do you explain 1990 then? And how do you explain seven years of unprecedented economic growth following the “biggest tax increase in history” that Bill Clinton voted for in 1993?
C’mon. You know better than this. The business cycle will run its course regardless of whether the top tax rate is 39.5% or 33%, increasing and decreasing revenues correspondingly. If your premise that tax cuts assure permanent, uninterrupted economic expansion and robust revenue growth was true, then why not cut taxes again this week? And then again next week? And then again next week? The revenues should come pouring in more and more plentifully with each cut right?
“You don’t get out much, do you?”
Sheesh. Try to help a Republican raise his grammatical skills beyond fifth-grade level and this is the thanks I get. So much for the much-lauded Republican “alternative” of charity. Nothing less than public schools can help you!
The concept of an idiom escapes you, doesn’t it?
(For the record, the phrase “not hardly” is an old Southern phrase meaning “by more than a small amount”.)
Growth didn’t really pick up until after Clinton’s 1996 capital-gains tax cut, which significantly cut tax rates on investments. The 1993 tax increase didn’t do anything other than make the recovery from th 1991-1993 recession take longer than it normally would have.
It’s biggest positive effect was helping the Republicans take control of Congress in 1994…
Marginal rates have a rather large macroeconomic effect. The business cycle is certainly influenced by tax policy, it would be rather silly to argue that things like marginal tax rates have no effect. What the 2003 tax cut did was combine decreases in the marginal rate with deductions and benefits for businesses. That helped foster the growth we’re seeing now.
Except that isn’t my position at all. Again, consider the Laffer Curve. There’s a point of diminishing returns when it comes to increasing or decreasing marginal tax rates. The increase in revenue of the last two years suggests we were on the far side of the curve, now we’re closer to the center. Once the current cuts are made permanent then the next Administration can determine whether or not further cuts are wise.
The biggest challenge isn’t cutting taxes, but slashing spending. Unfortunately, neither political party has the political will to do what’s necessary to fix that problem.