Tax Revenues Record High, Deficit Lowest in 5 Yrs.

From its monthly report released last Friday, the "CBO estimates that the federal budget deficit was about $161 billion in fiscal year 2007 (ended September 30), $87 billion less than the shortfall recorded in 2006. Relative to the size of the economy, that deficit was equal to 1.2% of gross domestic product, down from 1.9% in 2006. (See top chart above)

The CBO also reported that "receipts in 2007 were about $161 billion (or 6.7%) higher than in 2006," with individual tax receipts up by 11.3% and corporate tax receipts up by 5% (see bottom chart above).

And from today's WSJ staff editorial:

Americans coughed up a record $2.568 trillion in taxes to the IRS in 2007, or 6.7% more than in 2006. This means federal receipts have climbed by $785 billion since the 2003 investment tax cuts, the largest four-year revenue increase in U.S. history. Income, dividend and capital gains tax rates were all cut in 2003, but individual income tax receipts have soared by 46.3% in four years, with payments by the wealthy accounting for most of the windfall. Last year's increase in individual income payments was 11.3%, or more than double the rate of growth in nominal GDP.

The overriding lesson here is that the best antidote for deficits is faster growth, not tax increases. The budget deficit has declined more rapidly this decade in the wake of the Bush tax cuts than it did in the 1990s in the wake of the Clinton tax increases.