“Surprising” Economic News …
By Denise Best | Related entries in Economy, In The News, MediaLeave it to the Times to take positive economic news and put a negative spin on it.
What starts out as subtle needling i.e. Bush announced the news versus a lower level official …
Bush himself announced the deficit — a task that has in the past been left to lower-ranking administration officials. The figures show that the deficit for the budget year ending Sept. 30 will be $296 billion — much better than the $423 billion that Bush predicted in February and a slight improvement over 2005.
Bush said the improvement is due to tax cuts he pushed in 2001 and 2003 and his clampdown on domestic agencies funded by Congress.
”These tax cuts left nearly $1.1 trillion in the hands of American workers and families and small business owners. And they used this money to help fuel an economic resurgence that’s now in its 18th quarter,” Bush said. ”Economic growth fueled by tax relief has sent our tax revenues soaring.”
Impressive profits and big income gains by the wealthy are largely responsible for the surge in revenues and, in turn, the deficit drop.
Proceeds into growing negativity …
However, the results are less impressive when compared to the $318 billion deficit posted last fall for fiscal 2005. Despite strong revenues, the high costs of the Iraq war and Gulf Coast hurricane relief have weighed on the deficit — as have higher interest payments paid on the national debt.
”The 2006 deficit may be a bit lower, but it represents a $600 billion swing from the surplus projected in 2001. And a deficit of $296 billion is still a large deficit. In nominal terms, its one of the four largest in history,” said Rep. John Spratt Jr. of South Carolina, top Democrat on the Budget Committee.
Ending in a parting blast …
Bush has had few opportunities to boast about the deficit over the course of his time in office. He inherited in 2001 a surplus estimated by both White House and congressional forecasters at $5.6 trillion over the subsequent decade, and it quickly dwindled.
Those faulty estimates assumed the late-1990s revenue boom — fueled by the stock market and dot.com booms — would continue. But that bubble burst, and a recession and the Sept. 11, 2001, terrorist attacks started a flow of red ink. Several rounds of tax cuts, including Bush’s signature $1.35 trillion tax cut in 2001, also contributed to the return to deficits four years ago after four years of budget surpluses.
Even before the release of the figures, critics poked at the White House figures, citing, for example, how they are at odds from Bush’s original budget released in 2001, which predicted a $305 billion surplus for the current year, even after accounting for tax cuts.
Some budget experts say the steep rise in tax receipts looks more impressive than it really is since revenues are bouncing back from a three-year decline during Bush’s first term, drops not seen since the Great Depression.
Man, just think what the headlines and story would have been if the results had been what many liberals were giving as doomesday economic projections when the tax cuts were first proposed!
Now I’m not saying these results shouldn’t be taken with a grain of salt, but couldn’t there be a bit more acknowledgment that the tax cut approach taken by the Bush administration has garnered positive economic results?
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July 11th, 2006 at 11:21 am
No. Any improvement in the deficit has most likely beein in spite of Bush’s ridiculous tax cuts. Since he is making that claim, I would like to see some data to back it up. Otherwise, I will assume he’s full of it and trying to save his butt.
July 11th, 2006 at 11:32 am
Perhaps you’ve forgotten that the Bush administrastion has, for at least 5 years now, always given a unrealisticly high deficit estimate early in the year, so they can crow about how it is under their estimate and the end of the year.
July 11th, 2006 at 11:40 am
Brian in MA, quit posting comments as I will simply delete any new ones you write. For whatever reason, I can’t ban your IP address or your email address. Please respect this request.
July 11th, 2006 at 11:56 am
Meredith, why do you think this happened in spite of Bush’s tax cuts?
Like it or not, the economy is booming. Since the rich benefited from
the cuts, they’ve put that money back into their businesses and made
more money. Because they had more money, they paid
more in taxes. (25% of 2,000,000 provides more revenue
than 28% of 1,500,000). Ridiculous? No…. Brilliant? You bet’cha!
July 11th, 2006 at 12:41 pm
I’d like to see some evidence that this is occurring in spite of Bush’s policies.
July 11th, 2006 at 1:43 pm
Turns out that the budget is scheduled to be balanced before Bush leaves office. This is clearly because of Bill Clinton’s policies kicking in now, even though the deficit was Bush’s fault, right Meredith?
July 11th, 2006 at 2:19 pm
It does make sense that this not-terrible news about the deficite could be tied to the tax cuts effect of increasing spending. But I’m still unwilling to jump for joy because the swing from black to red was “only” $600B.
Correct me if I’m wrong here but all this means is that the additional tax revenue generated by the tax cut has finally started to mitigate the revenue lost to the tax cut in the first place. It still isn’t offseting the loss of revenue just lessening the hurt.
I’ve got nothing against tax cuts, but the one’s forced through by Bush, coupled with a very agressive foreign policy, still stike me as nuts.
July 11th, 2006 at 2:34 pm
That’s exactly what’s happening. It just took several years to happen.
A battleship doesn’t turn on a dime. The point is, there is more revenue coming in now than there was prior to the cuts (or at any other time).
Now if they would just seriously reduce some spending…
July 11th, 2006 at 2:36 pm
Nice rhetorical trick, but it seems to me that the onus is on you to disprove.
C’mon, if you try real hard, I’m sure you can find some reason to prove that “your boyfriend” Obama is the real hero here.
July 11th, 2006 at 2:38 pm
The problem here is that some are assuming a simple “cause and effect” between the lowering of taxes and the decrease in deficit. This is rather simplistic as there is really no direct evidence to support such a claim.
In fact, by the same logic, one could argue that low interest rates caused the reduced deficit or by increased borrowing (i.e., national debt).
For those unaware, Supply-Side Economics is in reality is as much a parlor trick now as it was during Reagan’s Tenure.
July 11th, 2006 at 2:39 pm
Ford, I hope your right and that the revenue will continue to grow as a result of the tax cuts but I’m too deeply skeptical to believe that will be the case. My (largely uninformed) take is that, after a period of rapidly increasing deficits, we’ve just settled into a new equilibrium at the current level of deficit.
July 11th, 2006 at 3:02 pm
Here’s an explanation I ran across that has been attributed to many an economics professor as author, but nonetheless, does give a rather good description of the impact and potential of tax cuts … spend circulation and spurring investments would seem to support today’s economic reporting.
July 11th, 2006 at 3:37 pm
“Nice rhetorical trick, but it seems to me that the onus is on you to disprove.”
No, the onus is not on me to disprove that the deficit is a little lower due to Bush’s tax cuts. If he is going to make that claim, he should be the one to prove it to me. The rhetorical trick is to ask me to prove a negative by proving a claim that someone else made is not true.
Look, it is a fact that Clinton left office with us in the black. Bush has spent a bazillion dollars on all sorts of stuff since he has been in office. I also agree with Big Rex that the cause and effect of tax cuts is not that simple and not provable directly related. Everyone always says, (probably not starting with the “trickle-down economics” theory from the Regan years) that tax cuts for the rich will put money back into the economy, and I keep hearing people say that the economy is booming. How do we know that either of these statements are true? Also, I personally don’t care what people say in general about the economy. Ask middle class, working poor and below poverty line people how they are doing. I’m sure the economy is always booming for the wealthy in this country.
July 11th, 2006 at 3:55 pm
Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore.
Is this an endorsement of tax fraud? Otherwise, I believe the author is ignorant of what the word “tax” means.
The whole point of taxation is that it is mandatory – no one can opt-out. Otherwise it would not be a tax – it would be a voluntary contribution.
July 11th, 2006 at 4:01 pm
From my understanding, it’s not impossible that the tax cuts didn’t spur the economic growth that made these higher revenues possible. Tax cuts can result in higher tax revenue sometimes, depending on circumstances. The supply-side fallacy is to suggest that they always result in higher revenues as well as economic growth.
July 11th, 2006 at 4:57 pm
I am truly not trying to be confrontational. I am not an economist. Did’nt the tax cuts create this deficit ? I know some will say there was a surplus, others will say there was a deficit when Bush came in. Until we get back to the amount of the deficit at the time of the tax cuts ( or use whatever year trend economists use ) is it really significant ? I for one am glad that it is not worse.
July 11th, 2006 at 5:06 pm
The lower deficits of the Clinton years weren’t a function of higher taxes, they were a function of a strong economy. That’s what brought in the bucks. Lowering taxes stimulates the economy (or at least it’s about all a president and Congress can do to stimulate one), so when an economy is weak it makes sense to lower taxes and give it some breathing room.
Nobody can tell what shape we’d be in if taxes hadn’t been lowered, but lowering taxes was the right, and really the only move for the Republicans to make. They’re going to get the credit for the economy based upon their actions whether they caused it or not, simply because they did the right thing when times were tough.
July 11th, 2006 at 5:44 pm
Well, this has kind of wandered off track, so a comment first on the original point of the post: when I read this, I thought it was from the editorial page. It was not. This was a story. As such, it is a shameful bit of journalism. I am not naive enough to think that journalists are unbiased in their reporting, but this was more op-ed than news.
This is exactly why the news media is losing credibility
Now, as to the debate at hand.
I think it’s great that the tax revenues were the second highest in 25 years. Good news! I do not know how much the tax cuts had to do with it. Maybe some.
But a couple of points: as stated already the growth in tax receipts seems like good news, but after the projections last fall we had low expectations. Bush has for several years now underestimated tax revenues just so they could come out with these announcements each summer.
OK, but that does not mean the tax revenue increase isn’t real…it is.
A huge componant of that are corporate income tax receipts, which I read rose 26 percent (individual income tax receipts climbed 14 percent)
Looking deeper, the strongest growth came from non-withheld taxes (bonuses like stock grants, capital gains on investments and estimated taxes).
The strong rise in corporate income tax was due to exceptionally strong profits as companies have made big gains because of worker productivity gains, lower or static wages, downsized workforces, etc. In other words, good news for companies, not such good news for workers.
Finally, a good chunk can be attributed to a one-year tax break for companies investing abroad that repatriated their earnings. That big gain will not be there next year
Meanwhile, the interest on U.S. debt is the fastest growing category of government spending.
I don’t have an issue with tax cuts—hey, cut my taxes more–as long as they come with a reduction in spending.
The Bush administration has not done that. Sure its great the US is getting more revenues but they are spending more than they are taking in–eventually, that bill is going to come due–when this administration is gone.
There was a time when conservative meant fiscally conservative. This brand of conservatism is fiscally irresponsible
When Bush took office, he predicted budget surpluses — in fact, a $600 billion budget surplus by 2006. Instead, the budget deficit is $296 billion. That’s $900 billion off his plan.
That’s pretty poor management.
July 11th, 2006 at 5:50 pm
$300 billion. To put that in perspective, that’s $1000 for each man, woman, and child in the US – including all those that don’t pay income taxes.
Somehow, a deficit of “only” $300 billion doesn’t impress me.
July 11th, 2006 at 6:44 pm
gerryf, just a sideline to what you wrote…remember that the 26% increase in corporate tax receipts wasn’t actually paid by the businesses themselves, but were included in the price of every good and service they provided. It’s good to help parse out where that revenue is coming from, but it still was paid by the consumers, when all is said and done.
July 11th, 2006 at 10:50 pm
This is administration spin at its best–so although we projected a sum outrageously beyond the record, and we came in just under it, we should be happy? I’m not convinced the “improvement” had anything at ALL to do with the tax cuts. I STILL think of supply-side as “voodoo economics.”
July 11th, 2006 at 11:27 pm
One notable thing which I haven’t seen discussed too much is that the economic boom of the late 90s which balanced the budget and created spectacular surplusses was grounded in the Internet bubble, which itself was driven by massive fraud at WorldCom, Enron, and others. While corporate behavior is not directly related to the sitting President, on President Clinton’s watch, the biggest frauds in American history were perpetrated, and on President Bush’s watch, those ponzi schemes failed and thus the economy suffered.
July 12th, 2006 at 7:49 am
It should be noted that the costs for the war in Afghanistan and Iraq are missing on the balance sheets. As such the Admin is massaging the numbers to make his supply-side policy seem like a winner.
Again as I noted, parlor trick.
July 12th, 2006 at 8:05 am
I think people are missing the fact that while tax revenue decreased because of the tax cut goverment spending did not. So the gov’t essentially spent the same amount of money but they just borrowed it instead of assessing taxes for it.
July 12th, 2006 at 8:12 am
The suggestion that a tax-cut for upper class (and yes, I am upper) spawned the U.S. economy is absurd. Like so many of, I did not invest in the mom & pops (middle class) that are the driving force our GLOBAL economy. On the contrary, I have invested in tax deferred instruments and quite frankly, I am greatful and enjoy watching my portfolio grow “tax-deferred.” The sober reality is that corporate America sets the agenda and even though I am a registered-republican I am fully aware that the republican party walks lock-step with coporate donors and the Bush Adminstration.
Consider this, how could we (Bush Adminstration) ask our brave military family to sacrifice so much in Iraq while at the same time providing disproportionate tax-cuts to the wealthy?
July 12th, 2006 at 11:04 am
Big Rex,
Just a note: the cost of the wars in Iraq and Afghanistan are included in these figures…you’re confusing the issue where the budget for the war does not reflect real costs, since supplemental bills are outside the budget for the war.
Blue,
Tax revenue did not decrease–it increased. But you are right, spending increased by more.
The “great numbers” aside, we will not really know the final numbers because some costs will not appear for 6 months to a year when the final budget is known…these numbers are based on what is known now. Things have a way of trickling in.
Either way, it is indisputable that tax revenues increased–did tax cuts do it? It would be difficult to argue they had nothing to do with it. If people have more money, and spend and invest it, tax revenues will increase–enough to offset the loss from the tax cuts? Tough to say.
I suspect in the long run we have seen a tax shift and temporary gains more than anything.
To me, the key issue is has this administration shown the kind of fiscal conservatism that used to be the hallmark of the republican party? The answer is quite clearly no.
This ain’t your father’s Republican party…it is something else, and true conservatives should be outraged.
July 12th, 2006 at 11:25 am
One more point on the the biggest fraud’s in history were committed on Clinton’s watch. These types of fraud are very complex and difficult to prove and track.
I am not a huge fan of Clinton, but I tire of the right dragging him out as a boogie man every time it suits their needs.
Especially when the people involved in these scandals were notorious for contributions to the Republican Party.
Using Enron as an example, while it is true that Enron’s corporate fraud began as early as 1996, with the creation of off the book entities, and continued through 1997, there was very little anyone could do to catch Fastow, Lay and Skilling because NONE OF WHAT THEY DID APPEARED IN ANY KIND OF PUBLIC WAY. The predominantly REPUBLICAN membership board of directors were the only ones who could have seen the Enron collapse coming and conveniently did nothing (other than enrich themselves). I take that back they did waive conflict of interest rules to ALLOW Enron to accelerate their corrupt deeds in 1999, the first real public clue something was amiss.
It was not until March 2000, when Clinton was on his way out, that the first real act that the government could attack occured when Enron filed fraudulent annual 10-K reports for 1999.
They missed that, and there is no denying it.
The depth of Enron’s greed and corporate wrongdoing did not start becoming obvious until 2001 when the evidence of wrong doing really began piling up, not only with additional fraudulent filings, but also the efforts of VP Sherron Watkins who in february first tried to flag the wrongdoing–and that was when George W. Bush was running the show.
Oh, and who was at the inauguration of George W. Bush? Why it was Enron CEO Kenneth Lay and president Jeffrey Skilling, who each made $100,000 contributions for the event.
I will give credit to this administration for going after Enron, even if it was only because the collapse was so spectacular that it could not be ignored, but please do not lay the crimes of these people on the prior administration–it’s ridiculous to say that it’s the police’s fault for not catching the criminal quickly enough.
July 12th, 2006 at 3:59 pm
gerryf Says:
July 12th, 2006 at 11:04 am
Big Rex,
“Just a note: the cost of the wars in Iraq and Afghanistan are included in these figures…you’re confusing the issue where the budget for the war does not reflect real costs, since supplemental bills are outside the budget for the war.”
Thanks gerry…my bad.
July 13th, 2006 at 6:31 am
[...] How many right bloggers have seized on this story mainly as a golden opportunity to convict the New York Times of treason? Conversely, how many New York Times reporters were glad to be wrong when the deficit wasn’t as deep as expected? Michael says: The truth should matter. It shouldn’t all be gamesmanship. It shouldn’t just be about advancing your agenda. It really should be a search for truth. [...]