Aug 2007 24

US deficit to fall yet again4

The Financial Times today reports that the US budget deficit will shrink to $158 billion in fiscal year 2007, according to the non-partisan Congressional Budget Office. This latest forecast is down from its March estimate of a $177 billion deficit and significantly lower than a $205 billion estimate issued by the Bush administration on 11 July.

Despite huge spending increases, the US deficit has been falling progressively from a high of $413 billion in 2004. But this is not surprising. The cuts to dividend, capital gains and income tax enacted in 2003 have seen tax revenues exceed forecasts ever since, which shows what bold tax reductions can achieve.

Dynamic modelling conducted by the Centre for Economics and Business Research earlier this year, commissioned by the TPA, shows that a phased reduction in Britain’s main corporation tax rate to the Irish rate of 12.5 per cent would deliver enormous growth, employment and tax revenue boosts. It’s time for politicians to learn the tax lessons, if not the spending lessons, from across the Atlantic.

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  • glenn middleton

    This report fails state that the US debt has risen by 2.8 TRILLION DOLLARS since 2001, and that the US government spends 400 BILLION dollars annually on interest payments.
    Is that a good economic model for the British TAXPAYER?

  • Corin

    The point I am making is not about the overall fiscal position of the US. Rather, I am pointing out how well-designed tax reductions raise far more revenue than forecast, and hence are able to bring down the deficit. In the case of the US, this is despite increases in government spending far outstripping economic growth (as has been the case under Gordon Brown). We should learn no lessons in government spending from the Bush administration, but the 2003 tax reductions have been a phenomenal success. The recent fiscal deterioration in the US has been due to excessive spending, not tax reductions.

  • glenn middleton

    And you also fail to mentioned that the US has also deliberately devalued its currency, which any sane economist will tell you stokes up inflation, and that part of the US economic growth is down to government SPENDING.
    On top of the Fed is now bailing out the credit market, another classic case of Corporate Welfare.

  • Jack Matthew

    You also don’t seem to understand the concept of sustainability. Any chancellor could create growth of 5% p.a.. But it would end in tears in the UK just as it did in the Lawson boom.