Quote: r3x29yz4a said: We had a surplus which is now gone. We lowered taxes (which lowers money coming into the government).
Quote: the G-man said: Cutting taxes often leads to more, not less, revenue for the government.
Despite increased federal spending, thanks to the tax cuts, the deficit is shrinking.
The country was facing the largest projected deficit in history when Bush promised to halve it as a percentage of GDP by 2009. Due to high wartime spending and the residual effects of the 2000–01 recession, the White House expected the 2004 deficit to reach $521 billion, or 4.5 percent of GDP. Bush’s goal was to reduce this to 2.25 percent by 2009.
After all the beans were finally counted, the 2004 deficit came in at $413 billion—roughly 3.5 percent of GDP. The economy had begun expanding, partly in response to Bush’s tax cuts, creating jobs and boosting revenue. This trend continued into the next year, pushing the deficit down to $319 billion in 2005.
This year, the projections look even better. Through the first eight months of this budget year, the deficit is $227 billion—16.7 percent lower than this time last year. That’s largely because government revenues in these eight months have reached $1.545 trillion, up 12.9 percent from last year.
Despite the strong updraft of federal spending, the deficit is on track in the next few years to continue falling until it approaches 2 percent of GDP. This is below the 2.5 percent that has been the national average since 1970, demonstrating that the president’s critics were simply wrong when they claimed that the Bush tax cuts would lead the country into economic ruin.
There is a lesson here, and it is vindicatory of the central claim of supply-side theory: Easing the national tax burden spurs economic growth, significantly mitigating the revenue loss that results from tax cuts. The national economy is a dynamic system, and it responds to the incentives and disincentives imposed on it by government policies. When businesses and individuals are allowed to keep more of what they produce, they produce more. And when investors are allowed to keep higher returns, they invest in more productive endeavors. This boosts GDP, which in turn boosts tax revenues.
