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Sunday, October 08, 2006

Update on the Federal Budget Deficit

The Mark Foley micro-scandal can't change the fact that the American economy is going great guns. The 2006 budget deficit figures were just released, and the deficit is not only getting better, it is now relatively small by historical standards.

Why is the deficit down?

The federal budget deficit estimate for the fiscal year just completed has dropped to $250 billion, congressional estimators said Friday, as the economy continued to fuel impressive tax revenues.
The improving deficit picture - Bush predicted a $423 billion deficit in his February budget - has been driven by better-than-expected tax receipts, especially from corporate profits, CBO said.

So cutting taxes to stimulate the economy really does work.


The standard technique is to cite the absolute size of the deficit to make it sound much bigger than it really is. But what you need to know is the size of the deficit relative to the GDP, and that number is down to 1.9%.

In summary...

Let's see, GDP growth is strong, productivity is way up, unemployment is low, family incomes are rising, inflation is down, the stock market is up, and the federal deficit is down. Yet polls show that we are about to put more Democrats into both the House and the Senate. That should fix all of these economic problems, real quick.

Hat-tip: Instapundit


(Please keep in mind that each commenter's opinions are only his/her own.)

Supply side theory provides a testable hypothesis: lower taxes stimulate growth, which causes higher tax receipts. We've had higher tax receipts without seeing commensurate GDP growth. It's good receipts are up, but it doesn't have anything to do with supply-side economics.

Thanks for taking time to read and comment. My knowledge of economics is pretty shallow. Please forgive me.

First, do you think I misread the original article, or are you also taking issue with it?

With GDP dwarfing the federal budget, would small GDP changes cause much larger changes in revenue? (Per Back Talk: "GDP growth is strong...")

To what hypothesis does this data conform?

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