NCPA - National Center for Policy Analysis


July 22, 2004

A flood of new tax collections, caused by larger employment payrolls and corporate profits is rapidly reducing the federal budget gap. The reason, says economist Larry Kudlow, is supply-side economics: as tax rates are lowered, individuals produce and invest more, resulting in stronger economic growth.

  • Tax receipts from business rose by 38 percent over the past 12 months, while personal income-tax collections increased by about 9 percent.
  • Overall, the latest budget numbers show a $19.1 billion surplus for the month of June, about $3 billion higher than Wall Street expectations.
  • The fiscal 2004 budget deficit is now estimated to be $435 billion, less than 4 percent of gross domestic product (GDP) and less than $100 billion below early year estimates.

Though some suggest the middle-class is being squeezed, Kudlow says those fears belie the facts. After-tax, real incomes have increased by 4.3 percent over the first five months of 2004, as compared with the same period a year ago.

Similarly, retail spending over the first six months of 2004 has increased by 7.7 percent compared with the year-ago period. Kudlow explains that the middle-class wouldn't be spending so rapidly if it was experiencing tough financial times.

Source: Lawrence Kudlow, "Kerry's economic deficit,", July 15, 2004.


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