July 20, 2005
Washington does not have a budget deficit problem, it has a spending problem, says the Wall Street Journal. Unfortunately, the federal budget deficit only commands screaming headlines when it is rising, not falling, and only when the press can portray the villain as irresponsible tax cuts, not runaway federal spending.
The Journal believes the shrinking federal deficit is the great unreported fiscal story of 2005. Consider:
- The deficit is down by at least $100 billion because federal tax receipts have skyrocketed this year by 14.6 percent (or $204 billion) through June.
- Thanks to sustained economic growth, more Americans working and improved business profits, individual income tax receipts increased by 17.6 percent and corporate revenues shot up nearly 41 percent.
- Private economic forecasters now believe the budget deficit may come in at about 2.5 percent of gross domestic product (GDP), which is in line with the historical average for the past 40 years.
Given that we are fighting an expensive, must-win war on terror, these deficit numbers are not too shabby, says the Journal. They also give credit to President Bush's investment tax cuts, which unleashed a spurt of tax receipts this year. The lesson: the best way to grow tax revenues is to grow the tax base.
But what has not happened in Washington this year is federal spending restraint, says the Journal:
- Despite pledges to trim spending growth to 4 percent, so far, total nonmilitary spending is up 7.3 percent.
- With a 10 percent boost in Medicare (even before the prescription drug program hits next year), we now devote a larger share of the budget to health care than to national defense.
- The Department of Education budget jumped 20 percent this year and has more than doubled over President Bush's tenure.
Thank goodness for Bush's tax cuts or things would be much worse, says the Journal.
Source: Editorial, "Disappearing Deficit," Wall Street Journal, July 12, 2005.
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