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.