THE SHRINKING DEFICIT
October 9, 2007
The Congressional Budget Office (CBO) has released its preliminary estimates for Fiscal Year 2007 that ended September 30, and the federal budget deficit fell again, this time by 35 percent to $161 billion, says the Wall Street Journal.
- Since 2004, deficit spending has tumbled by $251 billion, which is one of the most rapid three-year declines in U.S. history.
- The deficit as a share of the economy is down to 1.2 percent or about half the average of the last 50 years.
- This improvement is especially remarkable given the $150 to $200 billion a year of post-9/11 expenses for homeland security and the wars in Iraq and Afghanistan.
- Americans coughed up a record $2.568 trillion in taxes to the IRS in 2007, or 6.7 percent more than in 2006.
- This means federal receipts have climbed by $785 billion since the 2003 investment tax cuts, the largest four-year revenue increase in U.S. history.
- Income, dividend and capital gains tax rates were all cut in 2003, but individual income tax receipts have soared by 46.3 percent in four years, with payments by the wealthy accounting for most of the windfall.
- Last year's increase in individual income payments was 11.3 percent, or more than double the rate of growth in nominal GDP.
The overriding lesson here is that the best antidote for deficits is faster growth, not tax increases. The budget deficit has declined more rapidly this decade in the wake of the Bush tax cuts than it did in the 1990s in the wake of the Clinton tax increases. CBO is still forecasting a balanced budget in 2010, but if Congress gets its way on spending and taxes, all of this progress will be short-lived, says the Journal.
Source: Editorial, "The Shrinking Deficit," Wall Street Journal, October 9, 2007.
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