Cynical Nation

Like many other conservatives, my biggest disappointment with Bush's presidency has been his fiscal policy -- spending money like a besotted Popeye on a three-day shore leave bender -- or so the thinking goes.

According to Larry Kudlow, however, things might not be quite as grim as generally believed. Now mind you, I don't think Dubya is ever going to be the Ludwig von Mises poster boy or anything, but take a look for yourself.

The latest budget numbers closing out fiscal year 2004 show slower spending growth, stronger tax receipts, and a $413 billion deficit that came in about $100 billion less than the Office of Management and Budget predicted at the start of the year and $64 billion lower than the Congressional Budget Office estimate.

Overall, according the Treasury Department, tax receipts increased 5.5 percent in fiscal year 2004 compared to a 3.8 percent decline in fiscal year 2003. Income-tax withholdings gained 2.5 percent versus a loss of 2.2 percent in the prior year. Corporate tax collections exploded 43.7 percent on the shoulders of near-record corporate profits.
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Overall budget outlays increased 6.2 percent in the recent fiscal year, which is less than last year’s 7.3 percent. Excluding spending for defense and homeland security, as well as entitlements for healthcare and Social Security, domestic discretionary federal spending increased by a very moderate 3.4 percent in fiscal year 2004. If you remove net interest, then the budget increase was only 3 percent -- just a bit higher than the inflation rate.

As a share of gross domestic product, the deficit came in at 3.5 percent. That’s the same fraction of national income as last year. This deficit share of GDP is also lower than Europe’s and only about one-third of Japan's. This is more than acceptable. In the early 1980s the deficit share of the economy was over 6 percent, but that didn’t stop the Reagan boom, which followed large-scale tax cuts and deregulation measures.