Tuesday, July 12, 2005

U.S. Budget Deficit Narrowing Quickly On Revenue Surge
BY JED GRAHAM

INVESTOR'S BUSINESS DAILY

So much for record budget deficits. The tide of economic growth and surging
corporate and individual tax revenues are now expected to erase as much as
25% of the red ink the government was planning to expend this year.

Three-quarters of the way through fiscal 2005, the Congressional Budget
Office says the deficit will come in well shy of $350 billion and may fall
below $325 billion. The White House, which had forecast a record $427
deficit, will update its view Wednesday.

Some see the better-than-expected federal revenues as evidence that
President Bush's tax policy is working as advertised.

"This is exactly what the White House said would happen," said Heritage
Foundation budget expert Brian Riedl. "They said the tax cuts would
stimulate productivity, fuel economic growth and lead to smaller deficits."


Tax revenues through the first nine months of the fiscal year are up $204
billion, or 14.6%, from last year to $1.6 trillion, CBO estimated.

More than one-fourth of that improvement has come from corporate income tax
receipts, which are up $58 billion, or 40.8%, from a year ago.

Individual income taxes are up $105 billion, or 17.6%, from last year. The
payroll taxes that fund social insurance programs are up $34 billion, or 7%.

"It's a dramatic story," said Greg Valliere, chief political strategist at
Stanford Washington Research Group. "Whether you believe in supply-side
theory or not, supply-side-tax-cutting advocates are going to be
emboldened."

Valliere now expects the president to reach two years early his "modest"
pledge of cutting the deficit in half as a share of GDP by 2009.

Bush made the commitment during his bid for re-election at a time the White
House was projecting a deficit of 4.5% of GDP, although the 2004 deficit
ended up to be $412 billion, or 3.6% of GDP. CBO figures suggest the 2005
deficit may slip below 3% of GDP.

For an administration that had to deflect attacks about being fiscally
irresponsible in Bush's first term, the turn in the deficit is welcome news,
and the stakes couldn't be any higher. Closing the deficit is critical to
the president's goal of making his first-term tax cuts permanent and
cementing his legacy as a tax cutter.

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Well what do you know! JFK was right when he said "it is a paradoxical
truth that tax rates are too high today and tax revenues are too low - and
the soundest way to raise revenues in the long run is to cut rates now."

Bush cut the tax rate, and tax revenues increased. Supply side economics
obviously works, and the Laffer Curve is an accurate model of what happens
when taxes are decreased. Hopefully the current data will put the
naysayer's argument to rest.