U.S. Budget Deficit Drops to 5-Year Low

An economic truism Democrats and liberals do not seem to comprehend is that tax rates and tax revenues are inversely proportional. The higher the tax rate, the lower the tax revenue – the lower the tax rate, the higher the tax revenue.The Bush administration reported Thursday that the federal deficit fell to $168.2 billion in the just completed budget year, the lowest it has been in five years. The administration credited the Bush tax cuts for helping to generate record-breaking revenues.

The Congressional Budget Office statistical release on federal tax revenues provides a very illuminating insight into the success of supply-side economic policies. With Bush’s two tax cuts, Democrats saw nothing but looming increases in the federal deficit. Despite wars in Afghanistan and Iraq and more than one natural disaster, federal revenues have been unexpectedly ebullient.

As the following chart shows, even the CBO underestimated the success of the Bush tax cuts. The key distinction in this is that over this period, the “windfall” in government revenues amounted to a whopping $436 billion dollars.

chart_nugent10-12-07.gif

The increase in total revenues since the 2003 tax cuts amounted to an incredible $785 billion dollars. The Wall Street Journal provided some additional statistics to this demonstration to supply-side economics.

  • The federal deficit as a percent of GDP is down to 1.2 percent, about half the average of the last fifty years.
  • Since 2004, deficit spending has tumbled by $251 billion, one of the most rapid three-year declines in history.
  • Income, dividend, and capital-gains tax rates were all cut in 2003, but individual income-tax receipts have soared by 46.3 percent in four years.
  • Overall federal revenue is now 18.8 percent of GDP, compared with the 18.2 percent average of the past forty years.

Thomas E. Nugent, a financial contributing editor for National Review suggests pollsters ask the following questions in light of the latest statistics.

1.  Would you rather have lower taxes and higher government revenues, or higher taxes and lower government revenues?

2.  Would you support a party that offers you higher standards of living and lower taxes, or lower standards of living and higher taxes?

3.  Would you prefer a party that advocates protectionism that saves some American jobs but cause many more Americans to lose their jobs?

The simple fact is supply-side economics and lower taxes result in prosperity and growth for America. The high-tax, anti-growth, bureaucratic policies of the Democrats do not.  

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3 Responses to U.S. Budget Deficit Drops to 5-Year Low

  1. LOUDelf says:

    I beg to differ with the statement: tax rates and tax revenues are inversely proportional.

    I agree that raising taxes can hurt the economy, but there is a happy medium that can be reached. I am definitely one of the over-taxed, yet know if you cut my tax in half, it will not make its way back to the government.

    I do agree that lowering taxes in certain areas of the tax code CAN yield some increases, but by the statement above’s logic, you can cut the taxes to zero, and we’d never have debt again, and pave the streets with gold. Doesn’t pass the laugh test.

  2. stevep says:

    Ahhhhhhhhhhhhh No Not Really……We had a budget surplus for many of the years clinton was in office. Neither the 2 presidents before or the one after can boast that. Hows are tax revenue looking now?

  3. jre says:

    “An economic truism Democrats and liberals do not seem to comprehend is that tax rates and tax revenues are inversely proportional.”

    Well, then — let’s get cracking and lower the tax rate to zero, so we can have infinite revenue!

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