The shrinking deficit, courtesy of America's hedge fund managers and CEOs

My new column, headlined "Thanks, Rich People" is up online. It's also in print in the last of the old-look Time magazines (with Dick Cheney and a cloud on the cover). Next week everything will look different. Seriously different. Anyway, here's how the column begins:

During the 2004 election campaign, President George W. Bush pledged to halve the federal deficit, which had ballooned during his first term, by the end of his second. Lots of people--among them this particular economic journalist--scoffed.

The doubters were wrong. The Congressional Budget Office predicts that the deficit for the fiscal year that ends in September will be $177 billion--less than half the $413 billion deficit of fiscal 2004. The President will, by all appearances, not only meet his pledge but do so two years early.

He certainly didn't accomplish this by cutting spending--federal expenditures are up 19% since 2004, to a projected $2.7 trillion in fiscal 2007 (on the whole, this has been the most spendthrift Administration since Lyndon Johnson's). The deficit is shrinking, instead, because tax receipts have risen almost twice that fast. The President has offered a simple explanation for this welcome bounty: A strong economy, spurred by tax cuts, has driven up incomes and thus revenue. "Low taxes mean economic vitality," he said in February, "which means more tax revenues."

Not exactly. Tax receipts have actually been growing much faster than the overall economy, which means the tax burden has gone up. Congress, prodded by the President, cut tax rates in 2001 and 2003. Yet you are paying more in taxes. Or at least somebody is. Read more.

So who has been paying more taxes? Corporations and high-income individuals. It's not the Alternative Minimum Tax, at least not yet. Personal income tax receipts rose $250 billion from 2003 to 2006. According to the nice people at the Urban Institute/Brookings Institution Tax Policy Center, AMT receipts accounted for less than $13 billion of that. AMT revenue will rise a projected $46 billion this calendar unless Congress does something, though.

Disturbingly alert readers will note that the column is a follow-up on a blog post I wrote last week. I followed that up with posts on income inequality between counties and the income-distribution effects of lump-sum lottery payments. Anyway, go read the column. Then come back and yell at me. Please.

Update: Commenter martygm wants to know whether the CBO estimate of the 2007 deficit includes war expenditures in Iraq and Afghanistan. According to the most recent CBO Budget and Economic Outlook, published January 24, the projection does not include about $25 billion in additional war spending that it expects the administration to request from Congress. That would bump the total deficit to $202 billion--still less than half the $413 billion deficit of 2004.

Also, I've answered commenter Christie's question about what the increased spending of the Bush years has gone to here.