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The Dems' economic woes,...

by Paul C / July 18, 2004 11:49 PM PDT

...or in the words of economist Larry Kudlow, Kerry's economic deficit:

If it's not bad enough that rapid economic recovery has neutered Sen. Kerry's principal domestic criticism of President Bush, now comes even worse news for the Democratic campaign: The budget deficit is starting to substantially shrink.

The latest budget numbers show a $19.1 billion surplus for June, $3 billion higher than the $16 billion Wall Street expectation. It seems that a flood of new tax collections, spurred by fatter employment payrolls and corporate profits, is rapidly reducing the federal budget gap. Tax receipts from businesses rose an astonishing 38 percent over the past 12 months, and personal income-tax collections increased almost 9 percent. What's happening? Could it be that stronger economic growth from lower tax rates is producing more tax receipts? I believe it's called supply-side economics.

Just as the 1.5 million new jobs created since last August has terminated talk of a jobless recovery, the chatter over widening budget deficits will end. The fiscal-year 2004 budget deficit now looks to come in around $435 billion, less than 4 percent of GDP. This would be almost $100 billion below early year estimates from the Office of Management and Budget and about $50 billion less than Congressional Budget Office forecasts. The administration is also getting its arms around federal spending. Fiscal year to date, domestic discretionary program spending has slowed to 2.7 percent. (Emphasis mine)

Note: That >4% of GDP figure is by far the lowest percentage of the major Western industrialized nations. But let's let Mr. Kudlow continue:

Former Clinton economic officials Robert Rubin, Gene Sperling and Bowman Cutter -- all now advising Kerry -- continue to obsess over the alleged economic consequences of budget deficits. But there is virtually no evidence that the budget gap (two-thirds of which emanated from the Clinton recession) has had any negative effect on U.S. recovery prospects. In fact, even with the fastest economic growth in 20 years, long-term Treasury rates remain at 4.5 percent, the cheapest money in over 40 years.

All this is why Kerry's proposal to raise tax rates on upper-income individuals, small businesses, and key investment categories like capital gains and dividends is so completely out of touch. The Kerry tax hikes will blunt the good news on growth and deficits, exactly the reverse of what the pessimistic Kerryites are predicting.

Like the modern Democratic Party, the Kerryites neither understand nor acknowledge the tax-incentive model of economic growth that simply restates an old truism: Individuals produce and invest more if it is more profitable after-tax to do so. (Emphasis mine)

Ironically, by placing his $900 billion government-funded health-care plan at the center of his economic policy, Kerry has dropped any pretense of deficit reduction. He may take great pains to position himself as a Clinton-type moderate Democrat, but his policies are pure tax-and-spend liberal.

It seems apparent to me as to who here is the economic voodoo doctor...

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