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.