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Old 08-05-2005, 10:33 AM   #1
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Those Darn Tax Cuts

Sharp Rise in Tax Revenue to Pare U.S. Deficit

WASHINGTON, July 12 - For the first time since President Bush took office, an unexpected leap in tax revenue is about to shrink the federal budget deficit this year, by nearly $100 billion.

A Jump in Corporate PaymentsOn Wednesday, White House officials plan to announce that the deficit for the 2005 fiscal year, which ends in September, will be far smaller than the $427 billion they estimated in February.

Mr. Bush plans to hail the improvement at a cabinet meeting and to cite it as validation of his argument that tax cuts would stimulate the economy and ultimately help pay for themselves.

Based on revenue and spending data through June, the budget deficit for the first nine months of the fiscal year was $251 billion, $76 billion lower than the $327 billion gap recorded at the corresponding point a year earlier.

The Congressional Budget Office estimated last week that the deficit for the full fiscal year, which reached $412 billion in 2004, could be "significantly less than $350 billion, perhaps below $325 billion."

The big surprise has been in tax revenue, which is running nearly 15 percent higher than in 2004. Corporate tax revenue has soared about 40 percent, after languishing for four years, and individual tax revenue is up as well.

Most of the increase in individual tax receipts appears to have come from higher stock market gains and the business income of relatively wealthy taxpayers. The biggest jump was not from taxes withheld from salaries but from quarterly payments on investment gains and business earnings, which were up 20 percent this year.
And corporations are leading the charge!

I guess we missed this news here in FYM

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Old 08-05-2005, 10:45 AM   #2
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I guess some people missed this part of the article:

But many independent analysts cautioned that the improvement, though notable, could prove ephemeral and that it did little to eliminate much bigger fiscal problems just over the horizon. "Lawmakers who allow themselves to be lulled into thinking that the economy is growing its way out of the deficit," wrote Edward McKelvey, an economist at Goldman Sachs in New York, "are unlikely to support the painful measures needed to reach a more lasting solution."

For one thing, analysts note, federal spending has continued to climb rapidly, about 7 percent this year. Despite cutbacks in many domestic programs, spending has surged for the war in Iraq as well as in certain benefit programs providing health coverage.

In addition, while a lot of the increase in tax revenue flows from the improving economy and higher incomes, part of the jump stemmed from a special factor: the expiration of a temporary tax break that allowed companies to write off their investment in new equipment much more rapidly than normal.

That tax break reduced revenue by about $61 billion in 2004, but it merely postponed taxes that companies would have to pay once their equipment was fully depreciated.

Other financial hurdles may be down the road. Mr. Bush's intention to extend his tax cuts indefinitely, and to add new ones, would drain more than $1.4 trillion from government coffers over the next 10 years.

As the Medicare expansion into prescription drugs begins to take effect, the cost is estimated at about $33 billion in 2006, with increases every year after that. In 2015, the annual cost of the program is expected to be about $137 billion.

A senior White House official cautioned that it was too early to make definitive judgments about whether the tax cuts had fulfilled the promises of "supply side" economics, a Reagan era concept that posits a direct relationship between lower tax rates and faster economic growth.

"We need to wait for more data," said Ben S. Bernanke, who took over this month as chairman of President Bush's Council of Economic Advisers, at a conference on Tuesday at the American Enterprise Institute.
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