May 10, 2007

‘Hug a Liberal Economist’ Week Continues (April Monthly Treasury Statement Shows Record-Shattering Receipts)

Filed under: Economy,Soc. Sec. & Retirement,Taxes & Government — Tom @ 2:10 pm

The final April results are in. The current fiscal year’s deficit is quite a bit less than half of what it was at this time last year:

0407UStreasRecsFnl.jpg

As noted previously, the April spending number was expected to go up, because April 2006′s spending was lower than just about every month before or after it in fiscal 2006. But total spending for the fiscal year thus far is still well below the 4%-5% level I assumed when I predicted that this year’s deficit will be $177 billion. At the same time, collections thus far are way higher than the 9% I was using. It would be nice to think that 11%-plus will hold, but I don’t think it will; upside surprises are, of course, always welcome, I’ll take 10% in a heartbeat.

So go and give one of your liberal economist friends a hug. They must be nearly despondent over this huge vindication of supply-side economics’ tenet that, within a relevant range, decreasing marginal tax rates will increase revenues. That case is sooooo closed.

I still think that the full-year deficit could be as high as $150 billion. But looking at the remaining 5 months, here is a not-improbable scenario: If May-September receipts come in 10% ahead of May-September 2006 (vs. 11.2% so far), and spending during that same period only increases 3.7% (the year-to-date increase has only been 3.2%), the deficit at the end of this fiscal year will be $81 billion — right where it was at the end of April.

Now just think how good economic life could be if there were another supply-side tax cut to further increase general revenues and economic growth (four separate cuts worked to do just that in the US in the 1980s, Hong Kong, Ireland, Estonia, and Iceland), Social Security privatization to save that program, and Health Savings Accounts to deal with Medicare.

(Sigh) Considering who’s running Congress, it’s only a nice dream, as a subscription-only Wall Street Journal editorial pointed out yesterday:

Still, you’d think this dramatic fiscal turnaround would cheer up Capitol Hill. Instead, Congressional Democrats seem to live in a parallel universe — one that they claim is starved for revenues, with a runaway deficit, and is dominated by the rich who pay no taxes at all. The reality is that the wealthy are financing Democratic spending ambitions, and the deficit could easily vanish within a year or two if Congress has the good sense to leave current tax policy in place.

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UPDATE: By the way, the old record for collections was set in April 2001 at $331.8 billion (April 2001 still has the all-time record for the largest single-month surplus at $189.8 billion). The new receipts record shatters the old by over 15%. Neither the previous record nor the degree by which the new one exceeds it can be found in this report — the one tomorrow’s newspapers are going to run with — by good old Martin “How Can I Minimize the Good News about the Economy Today?” Crutsinger of the Associated Press.

UPDATE 2, May 11: Skeptical Optimist has moved his projected budget break-even month up to April 2008.

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1 Comment

  1. [...] THE INCREDIBLE SHRINKING DEFICIT? May it continue to get smaller. [...]

    Pingback by WetWorx » Blog Archive » The deficit is shrinking because of the good leadership of the Demcrats in control…. — May 12, 2007 @ 5:35 pm

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