Budget Deficit to be Lower than Forecast

Remember that big bad budget deficit that was originally forecast to go up indefinitely? The White House today said the current $427 billion budget deficit will be revised downward to an expected $350 billion, according to economists. The reason is a booming economy and good old fashioned supply-side economics: reduce taxes on saving and investment and you get more of them.

Larry Kudlow points out what would happen if spending were actually restrained:

Fiscal year-to-date withheld tax receipts are up a respectable 7.3 percent. But the real story is a 35 percent gain in non-withheld income, meaning capital gains, dividends, and self-employed unincorporated businesses. This is the fullest impact of the Laffer curve.

But spending is too high. Tax cuts on dividends and cap gains may pay for themselves. Conceivably the budget gap could fall below $300 billion. But if discretionary spending ex-defense and homeland security were held to Bush's 1 percent instead of 6.4 percent, then the deficit would be approaching $250 billion, or only 2% of GDP

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If spending were restrained, we might actually have to start thinking about how to spend those budget surpluses again.