I haven’t taken apart these numbers yet, but at first blush, this looks like excellent news:
Graphic courtesy New York Times
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My initial assumption is that corporate profits, real estate and
M&A are drivers, but thats just a guess. I’ll take a closer look
later this week.
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UPDATE JULY 10, 2006 4:00PM
A few of you have emailed me about this; Yes, I am aware of the tendency to overstate the deficit to make it appear that the deficit is not as bad as it actually is.
One of you emailed me this from Stan Collendar of the National Journal (via Brad Delong); Until i look more closely at the numbers, this will have to suffice:
BUDGET BATTLES: Wolf! (01/17/2006):
The Bush administration
held a conference call with reporters last week to say that the 2006 deficit
would be $400 billion or more. As the White House hoped, the media dutifully
reported that number. But, as it almost certainly did not want, the media also
reported that this latest Bush administration budget pronouncement should be
treated with doubt, skepticism, and perhaps even outright contempt. The reason
is that this president has a well-established history of overstating the deficit
early in the year and then taking credit when it turns out to be lower than
projected, even if it has done nothing to make that happen…
Again, I don’t do politics, I do data analysis — so I really don’t care who was the worse President, W. or Bill. What primarily interests me and the other people who frequent this site are the true indications of the underlying economy, i.e., is the Federal Deficit getting really better, or is this merely an annual bit of gamesmanship. (Please keep that in mind when commenting . . . )
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Source:
Surprising Jump in Tax Revenues Is Curbing Deficit
EDMUND L. ANDREWS
NYT, July 9, 2006
http://www.nytimes.com/2006/07/09/washington/09econ.html
i don’t know how optimistic i become after seeing the numbers, very easy to see the other side of this story as the wealthy get wealthier and cash out of the market, both stocks and real estate while there is a window. it would be interesting to see the breakdown of the individual numbers and how spread out the tax receipts are. i would guess that the majority of revenue is coming from a very very small piece of the overall tax base.
it is definitely good for the macro deficit picture at this very moment, but we all know things change rapidly and the overall deficit would swell if individual investors had a few bad years. i can’t see how 07′ will be as rosy as 05′ and 06′ without the windfall of real estate and stocks.
could you just imagine if we didn’t go to war in iraq and basically had a balanced budget? hmmm…
Increased revenue is nice but it’s not nearly enough and there isn’t a chance of it improving the deficit or national debt situation in any significant way UNLESS Dubya does what Clinton did and uses the Unified Budget (which includes the relatively healthy SS fund) instead of the General Budget (which Dubya actually operates – and has broken) for the calculation. Could be some interesting slight-of-hand (and delicious irony) happening here soon.
Good New?!?!? Hardly! Our deficit is still fairly large….at a time when we are at the end of an economic cycle. The revenue base is maximized per high employment, record corporate profits and profit margins and huge taxes on real estate capital gains. Seems to me that this is horrible news – that we cannot be in surplus given those conditions! We have only one way to go from here and that is down (or up with the deficit!).
I think Sarbanes-Oxley had a key part in the corporate story. No more fudging.
I agree with this editorial:
snip:
“These tax cuts haven’t exactly benefited “the rich.” A third of those higher income-tax revenues came from the highest-earning 1% of households, according to the New York Times.
– snip –
Supply-side tax cuts will not grow us out of a deficit unless the Congress can keep federal spending increases from outpacing economic growth. At least Republicans now have hard data to rebuff Democratic claims that tax increases are the solution to federal budget woes or that tax cuts favor “the rich.” Thank you, Professor Laffer.”
http://www.nysun.com/article/35673
jrg,
That’s a non-sequitor from the editorial. What this –
“”These tax cuts haven’t exactly benefited “the rich.” A third of those higher income-tax revenues came from the highest-earning 1% of households,…”
argues is that if the abolute level of taxes paid went up, the rate cut at the high end didn’t help the rich. That’s not only nonsense, but it is so tranparently nonsense that it’s hard to believe an honest individual wrote it. If tax rates had not been lowered, then those in the top 1% would have paid even more in taxes. The difference between what they did pay and what they would have paid is the benefit the top 1% had from the tax cut. Sheesh.
The Sun is a purely right-wing rag. What do you expect them to say? They print Republican talking points as if they were actual news.
>but it is so tranparently nonsense that it’s hard to >believe an honest individual wrote it. If tax rates had not >been lowered, then those in the top 1% would have >paid even more in taxes. The difference between what >they did pay and what they would have paid is the >benefit the top 1% had from the tax cut. Sheesh.
To be fair, it is not a question of dishonesty. The supply siders argue that the tax cuts caused increased economic activity, so that you can’t argue that tax revenues should have been higher if the tax rates were higher i.e. if the tax rates were higher the economy would not have done as well. Of course, I write this not to engage in a lengthy debate about it, but to point out that it is a difference in economic philosphies, not an issue of dishonesty.
Spending is still growing at 9% per year, though – highest in decades. Tell me that’s not inflationary!
I wonder how Charles Whelan would debunk this article. GROAN… I can just hear the Republicans running with this in the next few weeks… (Sorry– no politics, I know.)
I am curious…what effect (if any) did the repatriation tax break have on this data?
From what I recall, there was alot of repatriation in ’05 due to the narrow time window for the tax break. Surely MO, GE, CAT, etc with global product markes etc took advantage and artifically boosted the receipts. Either that, or I don’t know what I’m babbling about (bookmakers giving 2:1 that I don’t know what I’m talking about).
As Brad deLong points out, half the “benefit” comes from the deliberate overestimation made by White House (as they’ve done every year). Stan Collander should be required reading for all “journalists”.
Alaskan Pete asks a good question. Repatriation was an astonishingly short-sighted gift to corporations to allow them to pay 5% on their profits instead of 30% or so. I don’t have hard numbers but I’m guessing $30 – $40 billion was taken in to the treasury. Which sounds nifty until you think about the $200 billion or so the Feds gave up on collecting had the repatriation not been in effect.
More fun & games from the fiscally conservative side of the political spectrum. . .
jrg,
“I agree with this editorial”
I’m with k harris. The editorial is nonsense.
The official data is at: http://www.whitehouse.gov/omb/budget/fy2007/sheets/hist01z3.xls
In 2000, tax receipts were at 20.9% of GDP, outlays at 18.4% of GDP, and the surplus was at 2.4% of GDP.
In 2005, tax receipts were at 27.5% of GDP, outlays at 20.1% of GDP, and the deficit was at 2.6% of GDP.
Thus… since GW took office, receipts fell by 3.4% of GDP, and spending increased by 1.7% of GDP.
Any rational person can do some simple subtraction and conclude – if there had no spending increase, the tax cuts would still have led to deficits. On the other hand, if there had been no tax cuts, even with the spending increases there would still be a small surplus. Thus, as much as spending is a problem, the tax cuts are more of a problem.
“Thank you, Professor Laffer.” Thank you for convincing the American public that this stupid idea would actually work. And thank you, jrg, for believing in the Tooth Fairy without spending ten minutes checking to see if the data actually supports what you want to believe.
>Repatriation was an astonishingly short-sighted gift to >corporations to allow them to pay 5% on their profits >instead of 30% or so. I don’t have hard numbers but I’m >guessing $30 – $40 billion was taken in to the treasury. >Which sounds nifty until you think about the $200 billion >or so the Feds gave up on collecting had the repatriation >not been in effect.
Here I strongly disagree with you. That money never, ever, would have been repatriated if not for the “gift” to corporations. It would have been held and invested overseas in perpetuity.
are theses numbers adjusted for the devaluation of the dollar? we can always print money to get tax reciepts up, but if they buy less it doesn’t matter.. supply-siders are cheering these numbers but are not adjusting for inflation
The deficit is not falling. It never fell under Clinton. There are certain items (Iraq for one) that the government doesn’t include in the budget. You have to take a look at the national debt. It keeps moving higher. That means the deficit continues to get worse. There are things that arent included in the budget to make it look better, but ultimately everything shows up in the national debt figures.
@ cactus:
In 2005 – tax receipts = 17.5% of GDP, no? Thought I needed to start using calculators for these +/- operations.
The NY Times article supports Charles Wheelan’s argument that lower tax rates will increase tax revenue, but the resulting tax revenue will be a smaller percentage of GDP. Spending cuts have to be implemented along with the tax cuts since the government’s share of economic activity is smaller. (“Debunking One of the Worst Ideas in Economics”, http://bigpicture.typepad.com/comments/2006/07/debunking_one_o.html)
From the NY Times article,
“Tax receipts amounted to about 17.5 percent of the nation’s gross domestic product in 2005, far below the level five years ago and still slightly below the average of 18 percent since World War II. Spending, by contrast, is running at about 20 percent of gross domestic product.”
In other words, tax cuts don’t pay for themselves. They have to be accompanied by spending cuts.
Does anyone know how the 173B increase in the SS Trust was accounted for?
$94B was interest income?
Do they capitalize the interest not yet paid?
There is a difference better a unified deficit including all the cash i the trust funds and a straighter deficit not including cash “loaned” from trust funds.
Some trust funds are “fenced” to make the cash requirement lower………
Like putting off new runways or highway projects to make the deficit look better.
Look to growth of national debt.
Darkroth,
My bad. In 2005 – tax receipts = 17.5% of GDP as you wrote, not 27.5%. I gotta get me an editor one of these years….
Jordan,
“The deficit is not falling. It never fell under Clinton. There are certain items (Iraq for one) that the government doesn’t include in the budget. You have to take a look at the national debt. ”
The official federal debt data is at: http://www.whitehouse.gov/omb/budget/fy2007/sheets/hist07z1.xls
Gross federal debt as a percentage of GDP fell from 64.1% in 1992 to to 58% in 2000. By contrast, since then it rose to 64.3% of GDP in 2005. I note that the last time the Laffer curve nonsense was trotted out was during the REagan/GHW administrations, and the gross federal debt as a percentage of GDP rose from 33.3% in 1980 to 64.1% in 1992 – almost doubling in 12 years.
As to the war not being on the budget… correct. But, the fact that this administration inappropriately makes use of supplemental appropriations doesn’t mean that previous administrations did the same, at least not to anything that might be remotely construed as a similar degree.
One other note… since we’re on the subject of the national debt… here’s the part of GW’s economic blueprint (from February 28, 2001) where he described how he was going to pay off the debt:
http://www.whitehouse.gov/news/usbudget/blueprint/bud01.html.
I’m especially amused by: “Indeed, the President’s Budget pays down the debt so aggressively that it runs into an unusual problem—its annual surpluses begin to outstrip the amount of maturing debt starting in 2007. ” Thank you, Professor Laffer.
Guy,
“In other words, tax cuts don’t pay for themselves. They have to be accompanied by spending cuts.” Check the deficit numbers at the link I provided. As I noted earlier, without the tax cuts, we’d still be in a surplus even with the increased spending since 2000. However, even without the spending increases, the tax cuts alone are enough to put us in deficit.
Sure, the administration and the Congress spend like crazy. But the bigger problem, if you look at the data, is the drop in tax receipts. People who say otherwise are merely refusing to accept what the data shows.
Ok, here’s a question, how do we know it’s the tax cuts that are increasing the tax revenue and not the ramped up spending?
Has there ever been a time in the US History where taxes were cut and spending was cut as well (or at least held to the same level)?
According to Sen Kent Conrad and Cong. Jim Spratt on CSPAN, the administration’s claim that the deficit is going down is the usual smoke-and-mirror games that they have been playing with the American people for the past 5 years. For example, Conrad said that although the deficit may be down to $300 billion the more significant number is that the national debt will increase by $600 billion. Cong. Jim Ryan once said on CSPAN that although Clinton asked for debt limit increases from Congress three times in his eight years, Bush has asked for debt limit increases 5 times or every year since he got into office.