Has Karl Rove hired Jed Graham as the new spinmeister:
Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 – three years early. Tax revenues are running $176 billion, or 12.9%, over last year, the Treasury Department said Monday. The Congressional Budget Office said receipts have risen faster over the first eight months of fiscal ’06 than in any other such period over the past 25 years – except for last year’s 15.5% jump … While gains are broad, those at higher-income levels are enjoying bigger salary hikes. Because they pay higher rates, federal tax revenues soar when they do well. Those making over $200,000 now pay 46.6% of total income taxes, presidential adviser Karl Rove recently said. That’s up from 40.5% – despite Bush’s tax cuts.
That the very rich pay a large share in taxes simply reflects they receive a large share of the nation’s income. But it’s this comparison of nominal tax revenues for a portion of this fiscal year v. a portion of the previous fiscal year is misleading for several reasons – two related to variability and two related to long-term growth.
On the former – consider our graph of nominal tax revenues. We have discussed several times the fact that the U.S. economy was bound to eventually recovery from the 2001 recession. But also notice that there was a temporary dip in tax revenues during the middle part of 2005.
One might be tempted to say that nominal tax revenues in 2006QI were 15% higher than they were in 2001QI. But check out our second graph, which shows tax revenues fell relative to nominal GDP. Part of the reason for this decline relates to the fact that the price-level was 12.8% higher in 2006QI than it was in 2001QI. Alas, average real GDP growth has been rather anemic over the past 5 years.
Update: President Bush answered a question about inflation thusly:
On fiscal policy, though, I would strongly urge the Congress to recognize why we have grown the way we have grown, why we’re — have got strong economic growth in the first quarter of this year, why we’ve added over 5 million new jobs in a – in two-and-three-quarters years, and that’s because the tax cuts are working, and they need to make the tax cuts permanent. Pro-growth economic policies work. And that’s why I’ve been calling for permanence in the tax code. And so there will be monetary policy – we’ll pay attention very carefully to signs, inflationary signs. That’s Ben Bernanke’s job. Our job is to work with Congress to have wise fiscal policy. And wise fiscal policy means not only keeping revenues low, but it also means being wise about how we spend the people’s money.
That’s right – the President’s stated goal is to not have tax revenue growth, which means high deficits forever. And by telling Bernanke that fiscal policy will remain reckless, the path to low inflation requires higher interest rates, which of course reduces investment and long-term growth. But if we have permanent deficits as the President just promised – Sargent & Wallace’s Unpleasant Monetarist Arithmetic suggests that the FED will have a very difficult job in controlling inflation.
Maybe the President is simply following the advice of Peter Ferrara who opposes the efforts of the Entitlements Commission to have a balanced reduction in government spending along with tax increases. Sad.
Update II: Judd at Thinkprogress is tracking the rightwing bloggers who are crowing about the Investor’s Business Daily spin:
It shows a lot about the state of fiscal discipline in the conservative movement that these kind of numbers are cause for celebration.