Megan McArdle yesterday noting the story that we talked about here today, and the press refuses to talk about at all;
Thanks to George Bush’s amazing deficit reduction plan, the budget deficit is now only 1.2% of GDP. If this trend continues, by the time George Bush leaves office, the budget will be within a hair’s breath of being balanced. I can only hope that Democrats don’t squander this precious legacy of fiscal responsibility.
Just kidding! Not about the budget deficit, I mean, but about the reason for it. The reason the budget deficit has closed is a combination of economic growth and increasing inequality, which has allowed the government to collect more revenue on a smaller base. The rich really are different–they pay higher tax rates.
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Yes, one could argue (and Bob Rubin has) that closing the budget deficit a little made for amazing economic growth, thus raising tax revenues and allowing for even more deficit reduction. But the behavior of tax revenues under George W. severely undercuts this story. For reasons we still don’t understand, though inequality clearly plays a large part, tax revenues started rising faster than the rate of economic growth under Clinton. This trend has continued under Bush. That–and neither Rubinomics, nor supply side magic–is why tax revenues in both administrations keep delivering huge upside surprises, regardless of whether the administration cut taxes or raised them.
Megan, I’m surprised at you. The reason was the 1994 tax cuts which were rammed through by a Republican Congress over the objections of Bill Clinton.
Tags: Bill Clinton, BO, Bush, Clinton, Congress, Democrat, Democrats, Economics, hope, Income, marginal tax rates, Men, Republican, rich, supply side, tax cuts, taxes, UN, W
