NCPA - National Center for Policy Analysis

Structural Deficits

January 9, 2004

A recent Congressional Budget Office report illustrates the real dynamics behind deficits. Under current tax law, revenues will continue to grow and provide adequate revenues to finance a government growing at the same pace as the economy. It's when politicians use good economic times to enlarge government at the private sector's expense that revenues appear to "lag." This is precisely what the Democratic candidates intend to do by repealing the Bush tax cuts, says Jack Kemp, co-director of Empower America.

  • If the administration's tax rate reductions are allowed to expire, by 2050 the combined effect of economic growth and a progressive tax system will increase revenues to approximately 25 percent of GDP, the highest level of taxation in American history -- including World War II -- and fully one-third higher than the historical average.
  • On the other hand, if the president's tax cuts are made permanent, federal tax receipts would level off around their historic average of 18.4 percent of GDP.
  • Clearly, the "structural deficits" complained about in the press and among left-wing economists stem from too much spending, not insufficient tax revenue.

Recent press reports on the president's budget proposals for fiscal year 2005 suggest he is on the right track by reining in discretionary spending. Kemp hopes President Bush will campaign on the proposition that government spending should not grow faster than the economy and that he will pledge to veto any legislation inconsistent with this goal.

But to successfully ward off tax-and-spend liberals, as well as tax-happy Republican deficit hawks, Bush must provide bold leadership on entitlement reform. According to Kemp, the best way to reduce the growth of government is by enacting policies that allow the economy to grow faster and enable people to build wealth.

Source: Jack Kemp, "Deconstructing Rubinomics," TOWNHALL.COM, January 5, 2003; based on "The Long-Term Budget Outlook," December 2003, Congressional Budget Office.

 

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