As Bigger Piece of Economic Pie Shifts To Wealthiest, U.S. Deficit (down)

[question everything]

The Wall Street Journal

As Bigger Piece of Economic Pie Shifts To Wealthiest, U.S. Deficit Heads Downward
By GREG IP and DEBORAH SOLOMON
July 17, 2006; Page A2

(snip)

While tax revenue is growing far faster than the Bush administration forecast in its budget projections in February, the nation's economy isn't. What has changed isn't the size of the economy, but how the economic pie is divided. The share of national income going to corporations and the wealthiest individuals, already large, has expanded, while the share going to typical wage earners has shrunk. Because corporations and the wealthy generally pay income tax at higher rates than does the typical wage earner, that shift benefits the federal Treasury.

U.S. tax revenue for fiscal 2006, which ends Sept. 30, is expected to be 5% -- or $115 billion -- higher, than the administration projected in February. Largely as a result, the budget deficit is expected to be $296 billion this year, instead of $423 billion. But total economic output is expected to be just 1% larger, before adjusting for inflation, than the White House predicted. After adjusting for inflation, it is projected to be just 0.1% larger. While the unemployment rate is lower than the administration had expected, payroll growth has been slower.

(snip)

The administration has raised its estimate of corporate profits this year by 11%, but trimmed its estimate of wage and salary income by 1%. As a result, expected corporate tax collections have been revised up 20% from February. Individual income taxes were revised up 7%, with the increase primarily from wealthier taxpayers. Payroll taxes -- for Social Security, levied only on the first $94,200 of wage income, and Medicare -- are expected to total 1% less than expected. So, the tax windfall is another piece of evidence that income inequality in the U.S. continues to grow, which in turn may explain why the average American still gives President Bush low marks on the economy despite its overall strength.

On the other hand, it also may be evidence that Mr. Bush's tax cuts are working as advertised. Lower tax rates were meant to encourage people to work more, and because their taxes were cut the most, relative to income, the wealthiest may have the biggest incentive to work and earn more. In addition, cuts in taxes on capital gains and dividends were meant to reduce the cost of capital and encourage companies to invest more, which should lead to higher profits. This is called the supply-side effect, because it means workers and businesses are encouraged to supply more goods and services.

(snip)

Even if the wealthy and corporations maintain their larger share of national income, budgeting could become more treacherous. That's because corporate profits and the performance-based pay that makes up so much of the affluent's income are inherently more volatile than wages, as they are more dependent on fluctuations in business and stock-market conditions. Thus, the difficulty of projecting the Treasury's tax take could be long-lasting.


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[1932]

1. If the tax burden were born fairly -- if people benefitting paid taxes in

proportion to the benefits they receive -- we'd have NO deficit and we could afford to create a functioning society.

This is like the last hurrah. Tax revenues up slightly while we have huge deficits and public services are disappearing while the poor get poorer and the middle go nowhere. Yippee!

It's like the way the Titanic sunk: the back end lifted real high in the air when that front end broke away, but in the end they all sunk.

[gratuitous]

2. Drink deep of the Kool Aid, Wall St. Urinal

Revel in its fruity kool-aidy goodness! "Deficit heads downward" my sweet Aunt Fanny! Two things to keep in mind. No, three: First, even if the rosy scenario currently being spun by the corrupt Bush administration is true, we're still running the fourth largest one year deficit in the nation's history. Second, we're talking about a projected deficit for the year ending September 30. A lot can happen between now and then that might have an impact on our nation's bottom line (hint: war in the Middle East). Third, the projected deficit for the year doesn't take into account the supplemental appropriations for Iraq and Afghanistan. It's akin to saying you'll only be in the red by $500 if you don't have to make your mortgage payment. Well, if you don't make your mortgage payment, you could lose your house, so you will obviously make your mortgage payment. Which means your deficit will be $500 plus the mortgage payment. Just because you're not taking a debt into account doesn't make it disappear.

The Bush tax cuts (which magically become Congress' tax cuts whenever the impact turns out negative) are not working at all, as the nation's spending continues to far outstrip its revenues.

[rubberducky]

3. Just a thought ,but

what is going to happen when us peons, start losing our vehicles, homes, etc.?? When "we" have no more buying power? Who buys the products then? I guess, the smart thing to do is to invest in Wal-Mart and Dollar Stores!

[alvarezadams]

4. WSJ

Ugh

[mvd]

5. Another Bush lie

The tax cuts did NOT lead to this - it's from temporary growth in profits and bigger amounts of income for the wealthy. The Economist, which is middle of the road, says that deficits should continue to be high for the forseeable future.

[Eric J in MN]

6. yeah, CEOs make thousands of times what

...minimum wage earners make because they work thousands of times harder.

Or not.