The deficit is shrinking, thanks to the Bush tax cuts.
Friday, July 15, 2005 12:01 a.m. EDT
Let’s see if we can get this straight: When tax revenues fall and budget deficits go up, it’s bad news. But when tax revenues rise and deficits decline, it’s still bad news.
At least that seems to be the way a sizable chunk of Washington is reacting to this week’s report from the White House budget office that the federal deficit is down by nearly $100 billion this fiscal year, that the deficit as a share of GDP is down to 2.7% (very near its historical average), and that this is all happening because tax receipts are surging by more than 14%. Uncle Sam is having a better year so far than even Paris Hilton, but half of the Beltway is depressed.
John Spratt, the ranking Democrat on the House Budget Committee, seems especially upset that this revenue surge isn’t coming from wage income, but rather from investment income–that is, the so-called non-withholding income tax collections, which have skyrocketed by some 30% this year. ‘These are typically taxes paid on one-time capital gains, bonuses, stock-options income that may not recur,’ he laments.
Well, sure, Congressman, the 2003 reductions in the tax rates on dividends and capital gains seem to be resulting in much higher tax revenues on… dividends and capital gains. This is called the Laffer Curve effect, and we thank Mr. Spratt for validating it. If he wants those revenues to ‘recur,’ maybe he’ll even vote to make those tax cuts permanent.