The Declining Deficit
July 31, 2005
R.L.H. Ronald Reagan used to quip that Congress has never had a revenue problem, it has always been a spending problem. And it appears that He was right. Whenever taxes are raised, more spending follows, and no-one seems to know where it goes, or why, and what impact it has on the people. Government is naturally inclined to spend all the revenue it has available, and in many cases even more yet.
M.A.B. So it is an interesting fact, in spite of the dot-com collapse, corporate scandal, 9-11, continued threats of global terrorism, as well as record high oil prices the U.S economy continues to grow at above average rates, and the federal budget deficit is declining well beyond expectations. In such a challenging time, it is nothing short of heroic that the US economy has shown such continued growth, stability and endurance. This should be a testament to our strength as a people and as a nation.
R.L.H. We are an amazing nation. More amazing yet is the fact that the massive reduction in the federal deficit is going once again un-reported. Its reduction has been a huge domestic success, and yet it remains ignored by all too many media outlets. Initial estimates are anticipating a reduction in the size of the deficit by about $100 billion US dollars. This is an amazing testament while fighting a war on terror; rising oil costs, rising input costs and other economic factors. In spite of these odds, revenues are rising at a historically aggressive clip. But most important is... why? Tax receipts have surged this year by almost 15%, double expectations. That 15% increase represents $204 billion through June.
M.A.B. We believe these record setting increases are a direct result of Supply-Side tax reductions on investment and capital. In a world where capital can freely flow between nations, even the smallest and most marginal changes can, and does attract massive amounts of capital from across the world economy. This capital is the engine, which creates wealth, innovation, prosperity and continued success. And it is the productive people who use these resources wisely who are the real sources of strength in our economy.
R.L.H. The evidence is conclusive where the revenue boom is coming form: Capital. Businesses are reporting record earnings, as corporate tax revenues are up nearly 41% as reported in June to the US Treasury. This is nothing short of amazing, and might represent the largest single increase in American History. This is of course what most economists say is the direct result of the reduction of capital tax rates to 15% from 20%.
M.A.B. This point can not be understated. In a world economy where hundreds of billions of dollars are moved based upon finite decisions on tax rates on capital and investment returns, any changes will produce huge changes in revenue. Had the administration and Congress raised rates, revenues would have almost certainly fallen.
R.L.H. In spite of outstanding growth in revenue we still have a deficit. And that brings us to another point: Congress spends too much, and too carelessly. Recently the Citizens against Government Waste concluded that with tax rates remaining at the Bush levels there would be a balanced budget if not a surplus had Congress just stopped pork barrel spending. If nothing else, this should conclude that in our global market place the options we have are to use what we have more wisely, not raise taxes.
BOTH IN CONCLUSION: We would doubt that there are many in America who would actually believe that higher taxes would solve the fundamental problems of government spending. At any opportunity, Congress spends more, and if their diet is restricted, what they have might be used more wisely. Most importantly, the economic engine of America is moving at full pace thanks to industrious Americans, and not to spendthrifts in Congress who take their potentially productive capital. And that is how we see it FROM OUR PERSPECTIVE.