Federal Deficit Cut in Half

Federal Deficit Cut in Half

In a weekly column I wrote last June, I stated that: "Congress and the president have taken a positive first step toward fulfilling the president's promise of reducing the deficit in half by the end of the president's second term." In fact, after two years that goal of cutting the federal deficit in half has been realized. The Wall Street Journal recently called the falling deficit, "The best-kept secret in Washington."

Cutting the federal deficit in half over two years occurred due to a combination of spending restraint, led by the House of Representatives, and what White House Budget Director (and former Ohio Congressman) Rob Portman, terms, "A tidal wave of tax revenue."

To restore financial restraint, I voted with the majority of my House colleagues for the Defense Appropriations Bill for Fiscal Year 2006 (H.R. 2863), including a provision that makes a 1% across-the-board cut in budget authority for discretionary spending and contract authority.

I also voted for the House version of the Deficit Reduction Act of 2005 (H.R. 4244), which reached across the federal government's massive budget and found $53.9 billion in savings, over five years, to help further reduce the deficit.

The Deficit Reduction Act works primarily by slowing the rate of growth of mandatory spending programs that are not subject to the Congressional appropriations processes. According to the House Committee on the Budget, mandatory spending programs already consume 54% of the entire U.S. budget, and would rise to 62% by 2015, if left unchecked. The Deficit Reduction Act slows the rate of growth by less than one-half of one-percent over the next five years and makes no cuts to existing services.

The major factor in the incredible shrinking budget deficit has been the increasing tax revenues since the economic package, including tax cuts, were passed in 2003. Tax receipts increased by nearly 15% in fiscal year 2005 and then by almost 12% in fiscal year 2006; specifically tax collections have increased by $521 billion over the past two fiscal years. That makes the past two fiscal years the highest tax collecting years in U.S. history - even after adjusting for inflation.

The wealthiest Americans continue to pay their fair share. According to IRS data, the top 1% paid about 36.89% and the top 5% paid 57.13% of federal personal income taxes in 2004 (the most recent data available). By comparison, in 1999 the top 1% paid 36.18% and the top 5% paid 55.45% of federal personal income taxes. In 2004, the bottom 50% paid just 3.30% of all personal income taxes versus 1999, when they paid 4.00%.

In addition to personal and corporate tax revenues, collections on dividend are also up. Once again, the rates at which capital gains were taxed was lowered, and as in 1997, when the capital gains tax rates were last lowered, revenues shot up. The Wall Street Journal quotes A National Bureau of Economic Research study that found: "After a continuous decline of dividend payments over more than two decades, total dividends have grown by nearly 20%, and this happened at precisely the point at which the lower tax rate was proposed and subsequently applied retroactively."

The deficit which had been estimated at $521 billion only two years ago stands at $248 billion at the end of fiscal year 2006. While that appears to be a very large number, it is only 1.9% of our $13 trillion economy. Our deficit has been chopped in half over two years despite paying for the war on terror and the costs associated with rebuilding the areas devastated by Hurricane Katrina.

Nationally, the economy has grown for 19 consecutive quarters and GDP growth has averaged 3.5% over the past year. Gas prices have dropped significantly over the past couple of months, and the stock market's Dow Jones Industrial Average has reached record highs. This growth has helped generate the tax revenues that reduced the deficit. We need to improve conditions for manufacturing (as I wrote about in last week's column, you can find it on my web site www.house.gov/miketurner ).

It is important that the next Congress demonstrates even more fiscal discipline and holds the line on spending. We need to make the tax cuts permanent. Cutting tax rates does not generate too little revenue, nor does it shift the burden off of the wealthy. We need to improve manufacturing conditions so states like Ohio can fully participate in the economy. However, with the deficit cut in half in two years, we have made good progress getting it under control.

http://www.house.gov/miketurner/news/columns/10.13.06.shtml