Federal tax receipts continue to soar, with the individual income tax now expected to rise by about 15 percent this year and the corporate tax by 20 percent.
A year ago, when people noticed that tax receipts were going to be up by 15 percent, New York Times columnist Paul Krugman tried to dismiss it as "a temporary blip." That card can't be played twice.
The Bush team, on the other hand, has an odd habit of describing reductions in marginal tax rates as "tax relief." But the phrase "tax relief" surely implies that taxpayers are paying less in taxes when, in fact, some are paying much more.
A White House press release boasts that "since the beginning of 2003, real GDP growth has averaged 4.0 percent per year, exceeding the post-World War II average of 3.4 percentage points a year." That 3.4 percent average includes recessions. But the new budget projections estimate that economic growth over the next three years will slow to 3.2 percent.
After seeing the estimated budget deficit for the current fiscal year slashed by 28 percent in just six months, how much confidence can we have in budget estimates that stretch out 10 years or more? In a paper presented at a U.S. Treasury conference in 2004, I noted that "budget forecasting errors follow a cyclical pattern, becoming too optimistic near cyclical peaks and too pessimistic in the early stages of recovery, such as 1984, 1994 and 2004."
In January 1993, the Congressional Budget Office (CBO) estimated the deficit would hit $653 billion in just six years. When we got to 1999, the actual figure was a $126 billion surplus. That wasn't because of higher tax rates in 1993. Individual tax receipts were a smaller share of GDP in 1993-95 than in 1988-90, and no higher than now. In the fall of 1994, the CBO continued to overestimate the actual deficit for the year 2000 by 5.3 percent of GDP -- a $520 billion exaggeration for a single year.
As time passed, such gloomy estimates had to be repeatedly revised. The 1993 CBO estimate of a $579 billion deficit by 2002 was reduced to $349 billion after two more years and to $188 billion after four. By August 2001, the CBO projected a surplus of $176 billion for fiscal 2002, oblivious to an ongoing recession.