These increased revenues are the result of several things going on in the economy since Bush enacted his across-the-board tax rate cuts. More Americans are working and paying taxes, more investors have had capital gains from the sale of assets that have produced much higher cap gains tax revenue (even at the lower 15 percent rate), and more businesses have had higher earnings and thus have paid more in taxes.
Stronger economic growth: We keep hearing that the U.S. economy is slowing down, but too little about how the economy speeded up in first three months of this year.
In a revision of first-quarter growth, the government said the economy was expanding much faster than they had reported -- at 5.6 percent pace, instead of the previous 5.3 percent estimate.
In fact, the economy has been growing over 18 consecutive quarters, averaging 4 percent per year in inflation-adjusted terms. That's far better than the post-World War II yearly average of 3.4 percent.
A brighter jobs picture: The reason you don't hear Democratic leaders talking as much about jobs anymore is because more people are working than ever before. The Labor Department says 5.4 million new jobs have been created since August 2003, producing an unemployment rate (4.6 percent) that is lower than the average rates of the previous four decades.
Critics attacked last month's 121,000 new jobs as anemic, a figure that comes from business payroll surveys. But they ignored the government's separate "household survey" which showed that 387,000 new jobs were created last month. -- following a 288,000 increase in May.
The Wall Street Journal quotes economist Michael Darda of MKM Partners who says the average of the two surveys produces a gain of close to 250,000 in June "which is much closer to the reality of America's very tight labor market."
Thus the biggest challenge in today's Bush economy is finding enough workers, a problem they would love to have in Western Europe where unemployment remains close to double-digit levels.
No one expects the kind of growth we have seen in the first quarter to continue its torrid pace. The Fed's relentless interest rate hikes and the rise in oil prices will slow things down, but I think all this talk of a much cooler economy in the second half of this year has been overdone.
Economic growth rates will be lower but still respectable, barring any catastrophe here or in the global markets. Bear Stearns economist David Malpass says we should "expect solid 3.4 percent to 3.8 percent second half growth."
That's the kind of forecast that should keep the American economy on a growth path for the rest of this year and maybe beyond. Stay tuned.
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