Rising Tax Revenue and Falling Deficits

July 13, 2005

Tax revenue is increasing in the wake of a strengthening economy which continues to add jobs and expand income. Increases in tax revenues are decreasing projected budget deficits. According to the New York Times:

An unexpected leap in tax revenue is about to shrink the federal budget deficit this year by nearly $100 billion, which will be far smaller than the $427 billion [the White House] estimated in February.

It seems that the surge in tax revenue is due to increases in corporate tax revenue, which is up 40 percent from last year, and increases in capital gains.

While it cannot be definitely said that the rise in tax revenue related to the tax cuts of 2001 and 2003 is proof that “supply side” economics works, it is safe to say that the best way to maintain tax revenues is to provide an economic climate conducive to growth. A growing economy increases jobs and income, therefore increasing tax revenue.

See the Tax Foundation’s principles of sound taxation to learn what constitutes growth-promoting policy and our Tax Freedom Day report to learn more about how tax revenues rise and fall based on the growth of the overall economy.

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