If you want to know the real cost of Washington's economic stimulus, look no further than yesterday's Fiscal 2009 White House budget. The federal deficit is taking a giant leap backward, thanks in substantial part to the $150 billion in "temporary" tax cuts, says the Wall Street Journal.
This non-stimulating stimulus will largely take the form of tax rebates and credits that will do little to change economic incentives. Thus they will result in a nearly dollar-for-dollar revenue loss to the Treasury, expanding a deficit that was already going to climb to $219 billion thanks to slower economic growth and faster spending.
Yet President Bush's 2003 reductions on capital gains, dividend and marginal income-tax rates are precisely the kind of tax cuts that provide incentives to work and invest and thus recoup at least some of the revenue lost due to lower rates, as is evidenced by the unsung part of the budget story that overall revenue growth remains relatively healthy:
- The White House budget office says fiscal 2007 revenue rose by 6 percent, and the main reason they're estimated to fall modestly this year is the "stimulus" tax rebates.
- Taxes as a percentage of gross domestic product (GDP) are now 18.5 percent, slightly higher than the 40-year modern historical average.
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