Friday, February 09, 2007

Federal Surplus Predicted By 2009

Another hat tip to Jawa, who links to this RCP post about how a federal surplus is predicted by 2009:

In fact, our models expect average tax revenue growth of 9% over the next three years and spending growth of between 4% and 5%. This will generate a well below consensus deficit in FY07 of just $115 billion. Next year in FY08, we forecast a deficit of only $35 billion. On a 12-month basis, we suspect that the budget will move into balance early in FY2009, well before the Office of Management and Budget or the Congressional Budget Office expect.
But how can government revenues be increasing? Wasn't there a tax cut? Simple economics, my friend! When taxes are lowered, government revenue increases as people earn more money and spend more money, increasing the tax base.