Tax revenues are up and the deficit is dropping, even though total spending has increased and we are "suffering" from the Bush tax cuts and a "bad" economy.

An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year's levels and that the deficit will be about $100 billion less than what they projected six months ago. The rising tide in tax payments has been building for months, but the increased scale is surprising even seasoned budget analysts and making it easier for both the administration and Congress to finesse the big run-up in spending over the past year.

Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.

The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big increase in individual taxes on stock market profits and executive bonuses.

On Friday, the Congressional Budget Office reported that corporate tax receipts for the nine months ending in June hit $250 billion — nearly 26 percent higher than the same time last year — and that overall revenues were $206 billion higher than at this point in 2005.

Congressional analysts say the surprise windfall could shrink the deficit this year to $300 billion, from $318 billion in 2005 and an all-time high of $412 billion in 2004.

What we are seeing here is that the economy is, in fact, robust, and that the tax cuts have helped stimulate it to produce the new revenues. As the GOP constantly reminds folks, tax cuts raise tax revenue.

The potential problem, though, is that the government has been borrowing from Social Security for decades -- and no the Boomers are preparing to start drawing on the plan in the next two years. Thus there needs to be a long-term fix for taxes, the deficit, and Social Security -- something the Democrats are loath to allow to happen.

Posted by: Greg at 06:22 AM | No Comments | Add Comment
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