#70 - Vanishing surpluses

If you listen to the news now there is all kind of concerns being expressed that we will not have as big of surplus as was projected back at the beginning of the year. Congress and the media are getting concerned that this is a major problem. We have cut taxes and the beginning of the initial tax rebates are preparing to go out.

Well, duh! If you cut taxes, offer a rebate, then you will not have the revenue coming in that had been projected at the beginning of the year when the reports were that there was no way that Bush was going to get his income tax cut.

Does this mean that the tax cuts have failed? NO. They are actually accomplishing what was expected. They are refunding the excess taxes to those that paid them, and have cut the revenues available. Does this mean tax revenues will stay down? Probably not. History, the Kennedy and Reagan tax cuts, has shown us that revenues should actually rise in the future.

Have you listened to the concerns expressed by Congress and the press? It is not that we will not be able to pay down the debt as fast, but instead that they will not be able to spend moneys on any number of projects, including increased defense spending, education spending, road construction, and lots of other projects. What they are showing us is exactly what the proponents of the tax cut had said would have occurred if the money were not refunded to the tax paying Americans and that is that Congress would spend it. They would not have used it for reducing the deficit.

The good news is that apparently our government has now learned that they need to live within their income. That they can't just spend like a drunken sailor. Now they will have to start making the hard decisions of what should government do and what should it not do.

So the vanishing surplus is not unexpected. We used it to reduce taxes. Now lets watch and see what happens in the next year or two once the money starts in the economy. And yes it is too early to say that the tax cut has not sparked the economy because until people receive their first pay checks in July and their rebates in August, there is no tax money been fed to the economy. So lets not claim that it had no effect, until it could have an effect. If I say I am going to take a shower, do I start smelling cleaner then? No, you have to wait for the soap and water to hit me for me to start smelling cleaner.

Dwight

Click to subscribe to Watt-thoughts

Return to Watt Thoughts Web Page

Send e-mail to Dwight Watt.

Copyright 2001.