The Treasury Department’s tax-collection data for April puts the federal deficit over the 12-month period ending April 30 at $144.7 billion. This leaves the deficit at about one percent of GDP, and declining, which is not a significant economic problem.
The decline is due to surging tax revenues from a booming economy. The deficit is down about $120 billion, or 45 percent, since last April. It has declined by $309 billion, or 68 percent, over the last three years from the peak of $455 billion in April, 2004. This experience shows that combining pro-growth tax cuts with just moderate spending restraint can sharply reduce, and, indeed, eliminate the deficit.
The deficit has declined now for 26 consecutive months and will continue to do so over the next 5 months until the end of the fiscal year. The deficit will consequently soon be well below one percent of GDP. Even with some modest slow down in economic growth, this deficit could be eliminated over the next two years with reasonable restraint in the growth of federal spending.
But any such reasonable restraint in spending is not going to happen with the new Democrat Congress. Their emerging budget plan calls for even more rapid increases in federal spending, sopping up all projected increases in revenues, which will leave no scope for continued deficit reduction in the next fiscal year. They tout a plan to eliminate the remaining rapidly shrinking deficit over a ridiculous five years, and that only with tax increases.
Starting this fall, therefore, Democrats will be harping on a deficit which was rapidly falling toward extinction, but which they chose instead to sustain and perpetuate with excessive spending increases.
Tax revenues this fiscal year are running at about 19 percent of GDP, which is in line with historical averages over the last 50-plus years, showing there is no justification for a tax increase. But the Democrats’ plan for history-shattering tax increases starting in the next fiscal year, to support record-setting increases in spending. Their long-term budget plan is for truly massive increases in taxes and spending, like nothing ever seen before.
Those conservative commentators who argued last year that Democrats would be better at fiscal discipline than the Republicans played a major role in bringing down the Republican congressional majorities. They are being proved quite wrong.
Now just wait until you hear about the Democrat plans for entitlements.