Rusted Sky

So, you drop the tax rate and...

Revenues go up. And up. And up.

Counter-intuitive, isn't it?

BizzyBlog � ‘Hug a Liberal Economist’ Week Continues (April Monthly Treasury Statement Shows Record-Shattering Receipts)

As noted previously, the April spending number was expected to go up, because April 2006’s spending was lower than just about every month before or after it in fiscal 2006. But total spending for the fiscal year thus far is still well below the 4%-5% level I assumed when I predicted that this year’s deficit will be $177 billion. At the same time, collections thus far are way higher than the 9% I was using. It would be nice to think that 11%-plus will hold, but I don’t think it will; upside surprises are, of course, always welcome, I’ll take 10% in a heartbeat.

So go and give one of your liberal economist friends a hug. They must be nearly despondent over this huge vindication of supply-side economics’ tenet that, within a relevant range, decreasing marginal tax rates will increase revenues. That case is sooooo closed.

I still think that the full-year deficit could be as high as $150 billion. But looking at the remaining 5 months, here is a not-improbable scenario: If May-September receipts come in 10% ahead of May-September 2006 (vs. 11.2% so far), and spending during that same period only increases 3.7% (the year-to-date increase has only been 3.2%), the deficit at the end of this fiscal year will be $81 billion — right where it was at the end of April.

This is incredibly good news... unless you're a Democrat. In which case, it's incredibly BAD news. After all, how are you going to keep people frightened about the economy going sour if tax revenues keep going up?

Still, you’d think this dramatic fiscal turnaround would cheer up Capitol Hill. Instead, Congressional Democrats seem to live in a parallel universe — one that they claim is starved for revenues, with a runaway deficit, and is dominated by the rich who pay no taxes at all. The reality is that the wealthy are financing Democratic spending ambitions, and the deficit could easily vanish within a year or two if Congress has the good sense to leave current tax policy in place

They won't, of course. They see a golden goose, and would rather slaughter it to get the gold out now than let it keep on laying. Or, to use another barnyard comparison - you can shear a sheep many times, but you can only slaughter it once.

And I, for one, don't want to return to the Carter era re taxation.

J.