Thursday, October 25, 2007

Understanding The 2007 Federal Deficit Numbers

One of the more interesting articles today that made me step-back from all of the "doom and gloom" was from economist, Jeff Thredgold, and his weekly assessment of the economy. What was interesting was the fact that the 2007 federal budget deficit, ending September 30th, was $163 billion. So what? Well.. That number represents 1.2% of the GDP for the US, which is HALF the average deficit for the past 40 years. Jeff argues that the tax cuts have increased revenues (a point of contention for any Dem vs. Rep) into the Federal Gov't and significantly decreasing our budget deficit relative to the GDP:

Progress continues to be made in reducing the U.S. government’s income versus spending imbalance, commonly known as the annual budget deficit. Additional progress from this point, however, may be more difficult to come by.

The federal budget deficit for fiscal year 2007, which ended on September 30, registered $163 billion. The number resulted from government spending of a mind-boggling $2.73 trillion ($2,730,000,000,000) versus revenue of $2.57 trillion ($2,570,000,000,000).

One would think that having more than $2.5 trillion to spend over 12 months might be enough…

…not the case

Still, good news saw the deficit decline by 34% versus the $248 billion shortfall of the prior year, and down more sharply versus deficits of $318 billion and $413 billion of the two prior years.

More relevant is the deficit as it relates to the size of the U.S. economy. The $163 billion deficit represented 1.2% of GDP, roughly half the average deficit of the past 40 years.

One would also like to think that recent budget deficits have been declining because members of Congress and the Administration have taken a more responsible approach as to how they spend our money…

…also not the case

American voters removed Republicans from Congressional control last November because they saw too many spending excesses…too many pork barrel spending projects…too much waste.

Democrats took control with promises of greater spending (and pork) transparency…

…what a disappointment!

.. I argue that when you cut tax rates, especially on incomes, capital gains and on dividends, you simply generate more tax revenue. When you boost tax rates, you simply generate less revenue. History is replete with one example after another.

People are intelligent. They make rational decisions as to their investments. For example, they elect to recognize capital gains when tax rates are lower, and sit on possible capital gains when tax rates are higher. The government has never figured this out.

Overall tax revenues climbed by $785 billion since tax rates were cut in 2003, the largest four-year revenue gain ever. Individual tax receipts have jumped more than 46% over the past four years, with the wealthy paying most of the additional taxes.

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