The Best-Kept Secret in Washington The USA
The Wall Street Journal, in a subscription-only editorial I hope they are smart enough to put out for free this weekend, tells the tale:
Congress keeps breaking the Beltway Book of World Records for spending money, but the government will soon report that the federal budget deficit for the just-completed 2006 fiscal year fell to about $260 billion.
What’s the secret of this deficit success that you aren’t reading much about this election year? It isn’t spending restraint. The federal budget expanded to $2.7 trillion last year, a 9% increase, or three times the inflation rate. Over the past six years the federal budget has increased by 49.2%.
The main cause of the deficit decline — 90% of it, says White House budget director Rob Portman — is a tidal wave of tax revenue. Tax collections have increased by $521 billion in the last two fiscal years, the largest two-year revenue increase — even after adjusting for inflation — in American history. If you’re surprised to hear that, it’s probably because inside Washington this is treated as the only secret no one wants to print.
….. One place it has come from are corporations, whose tax collections have climbed by 76% over the past two years thanks to greater profitability. Personal income tax payments are up by 30.3% since 2004 too, despite the fact that the highest tax rate is down to 35% from 39.6%. The IRS tax-return data just released last month indicates that a near-record 37% of those income tax payments are received from the top 1% of earners — “the rich,” who are derided regularly in Washington for not paying their “fair share.”
More good news is that dividend-tax payments appear to be up as well, even though the tax rate was lowered to 15% from as high as 39.6%. A National Bureau of Economic Research study found that “after a continuous decline in dividend payments over more than two decades, total regular dividends have grown by nearly 20%” and that this reversal happened at “precisely the point at which the lower tax rate was proposed and subsequently applied retroactively.” There hasn’t been a purer validation of the Laffer Curve since Ronald Reagan rode off into the sunset.
Just imagine where we’d be if Congress had exercised even modest control over wasteful spending during the past few years.
But don’t forget that I’m not in an entirely celebratory mood about this. Don’t get me wrong; it IS very nice to see the “tax cuts increase revenues” scenario work for the 4th time (Kennedy 1963, Reagan 1982, cap-gains 1997, and Bush 2003). But I can’t forget that the national debt is increasing every year by more than the reported deficit (discussed here over a year ago), or that there are those trillions of dollars (over $60 trillion according to this actuary’s post) in future Social Security, Medicare, and other government-funded obligations the Washington ruling class refuses to deal with (because we won’t force them to).
