NCPA - National Center for Policy Analysis


July 12, 2007

Red ink in Washington is invariably an excuse for raising taxes, so perhaps falling deficits should be a reason to cut them, says the Wall Street Journal. 

According to the Bush Administration's midsession budget review, released yesterday:

  • The deficit will have shrunk by more than 50 percent in three years to $205 billion in the fiscal year ending this September from $413 billion in 2004.
  • As a share of the economy, the budget deficit is expected to fall to 1.5 percent, well below the 40-year average of 2.4 percent.

Buoyant tax revenues are the major reason for this deficit reduction, says the Journal:

  • So far this year tax receipts are up 7.5 percent, and that follows two years of double-digit increases.
  • Federal tax receipts since 2004 are up by nearly $700 billion -- the largest ever revenue gain over a similar period.
  • Tax collections have been so resilient that many private forecasters and the Congressional Budget Office are predicting a budget deficit well under $200 billion by year's end.

In 2003, President Bush and Congress cut taxes on investment and high earners, and the happy result has been revenues aplenty.  As a hedge against the economy cooling down, it might be time to cut tax rates further on the economy's most productive assets and workers, says the Journal.

Source: Editorial, "Down Goes the Deficit," Wall Street Journal, July 12, 2007.

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