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Subject:
Record US Tax Receipts 2006
VelocityVector
10/6/2006 9:20:42 AM
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Tax Tidal Wave
The Wall Street Journal
Friday, October 6, 2006
A14, Col. 1
Congress keeps breaking the Beltway Book of World Records for spending money, but the government will soon report that the federal budget deficit for the just-completed 2006 fiscal year fell to about $260 billion.
What's the secret of this deficit success that you aren't reading much about this election year? It isn't spending restraint. The federal budget expanded to $2.7 trillion last year, a 9% increase, or three times the inflation rate. Over the past six years the federal budget has increased by 49.2%.
The main cause of the deficit decline -- 90% of it, says White House budget director Rob Portman -- is a tidal wave of tax revenue. Tax collections have increased by $521 billion in the last two fiscal years, the largest two-year revenue increase -- even after adjusting for inflation -- in American history. If you're surprised to hear that, it's probably because inside Washington this is treated as the only secret no one wants to print. On the few occasions when the media pay attention to the rise in tax collections, they scratch their heads and wonder where this "surprising" and "unexpected windfall" came from.
One place it has come from are corporations, whose tax collections have climbed by 76% over the past two years thanks to greater profitability. Personal income tax payments are up by 30.3% since 2004 too, despite the fact that the highest tax rate is down to 35% from 39.6%. The IRS tax-return data just released last month indicates that a near-record 37% of those income tax payments are received from the top 1% of earners -- "the rich," who are derided regularly in Washington for not paying their "fair share."
More good news is that dividend-tax payments appear to be up as well, even though the tax rate was lowered to 15% from as high as 39.6%. A National Bureau of Economic Research study found that "after a continuous decline in dividend payments over more than two decades, total regular dividends have grown by nearly 20%" and that this reversal happened at "precisely the point at which the lower tax rate was proposed and subsequently applied retroactively." There hasn't been a purer validation of the Laffer Curve since Ronald Reagan rode off into the sunset.
As for the budget deficit, at $260 billion it is now about 2% of our $13 trillion economy, well below the 2.7% average of the last 40 years. Most states and localities are also afloat in tax collections, and including their revenue surpluses brings the total U.S. public sector borrowing down to roughly 1.5% of GDP. Not too shabby given that we're waging a war on terrorism and Congress spent $50 billion last year on Hurricane Katrina clean-up.
Anyway, we thought our taxpaying readers might like to know how much you've all been contributing to the falling deficit -- the best-kept secret in Washington.
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