The federal Office of Management and Budget has reported the final annual budget deficit was cut from an earlier-estimated $423 billion to "only" $248 billion. Where did the extra $175 billion come from. Not from spending cuts; from increased tax revenues.
What gives? Congress just extended many of the Bush tax cuts. The answer is of more than passing interest for U.S. manufacturers, many of whom have been able to cut their effective tax rates, especially when a voter decision on November 8 could well install Rep Charles Rangel (D-NY) in the key power role of chairman of the tax-writing House Ways and Means Committee. Rangel has pledged to repeal the Bush tax cuts, stating that he "can't think of one" that should be extended. Pres. Bush has indicated his continued intent to have his tax cuts made permanent . So the election will make a difference.
With lower rates, Congressional budgeteers calculate, tax revenues will be reduced reflecting the lower marginal rates. "Static scoring" is the technical term. Contrast that to the alternative economic model, "dynamic scoring" whereby the model is tweaked to accept the possibility that reduced RATES will stimulate additional economic activity and generate new, additional amounts of revenue.
Well, if today's deficit news proves anything besides the fact that economics is still an inexact science, it is that dynamic scoring needs to become the operating procedure of the Congressional Budget Office.
