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Jul 17 / Jonathan

WSJ: Deficits and economic pies

As Bigger Piece of Economic Pie Shifts To Wealthiest, U.S. Deficit Heads Downward
By Greg Ip and Deborah Solomon
WSJ; July 17, 2006; Page A2

In announcing a big drop in its estimate of this year’s federal budget deficit, the Bush administration was quick to credit itself.

“Tax cuts worked to generate economic growth, and economic growth is now working to raise revenues,” White House budget director Rob Portman said last week during an online discussion with the public.

But this explanation falls short. While tax revenue is growing far faster than the Bush administration forecast in its budget projections in February, the nation’s economy isn’t.

What has changed isn’t the size of the economy, but how the economic pie is divided. The share of national income going to corporations and the wealthiest individuals, already large, has expanded, while the share going to typical wage earners has shrunk. Because corporations and the wealthy generally pay income tax at higher rates than does the typical wage earner, that shift benefits the federal Treasury.

(Via Mark Thoma)

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