Sharp Increase in Tax Revenue Will Pare Budget Deficit
A massive increase in tax revenue, especially from the fat cat corporations and the very wealthy, on whom greedy Republicans cut taxes in order to pass the burden to the little man, will mean a much lower than predicted budget deficit.
For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion. On Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February. Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.
Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier. The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be “significantly less than $350 billion, perhaps below $325 billion.”
The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well. Most of the increase in individual tax receipts appears to have come from higher stock market gains and the business income of relatively wealthy taxpayers. The biggest jump was not from taxes withheld from salaries but from quarterly payments on investment gains and business earnings, which were up 20 percent this year.
That was similar, though much smaller than a sharp rise in tax revenue during the stock market boom of the late 1990’s, which was followed by plunges in revenue when the market bubble burst.
The article also notes that part of the increase is from the expiration of a special break for corporate depreciation accounts for some of the surge, although one presumes that was already factored into the projections. Further, exploding costs for Social Security and Medicaid will make balancing the budget even harder down the road.
Bush will of course take credit for this surge just as his opponents blamed him for the deficit; such is politics. In reality, this mostly proves that the business cycle has not been repealed. As Ace notes, “Chimphitler McHalliburton still spends too much of America’s money. But– the improving economy is boosting tax receipts. And that, as it did in the 1990’s, shrinks the deficit.”
Quite so. Bill Clinton, quite understandably, took credit for the sudden evaporation of the budget deficit when irrational exuberance took hold of the stock market and every domain with a dot com at the end of it was making its teenage proprietor rich enough to buy an NBA franchise. Bush came in after that bubble burst and then had the 9-11 attacks and their multi-billion dollar hit on the economy to deal with. Of course, fighting a major war doesn’t help much, either.
Government spending is out of control and there is no end in sight to that. While the public generally hates taxes and thinks government spends too much of their money, they continue to demand government provide more and more services. While Republicans promised to cut all manner of programs for decades, they eventually learned that people only wanted to hear them talk about doing that, not actually do it. Or, more precisely, they wanted the Republicans to cut programs that helped out that other guy–those evil special interests–not them.