Committee News

Cut the Deficit by Growing the Economy

Nov 15 2012

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The President could have honored his pledge to cut the deficit in half if he had focused on growing incomes and wealth instead of focusing on how to re-divide the pie.

Prior to the start of the recession, fiscal year 2007 revenues rose to 18.2% of 3rd-quarter GDP. Federal government receipts stood at roughly $2.6 trillion in fiscal year 2007, the highest on record and 25% greater than in fiscal year 2000. In the fiscal year just ended, the U.S. government collected $2.4 trillion in revenues or 15.5% of 3rd-quarter GDP.

If the economy had grown by 16.8% like it averaged in the other recoveries and revenues had returned to the 18.2% of 3rd-quarter GDP that they were in fiscal year 2007, the U.S. government would have collected an additional $653 billion in revenue. That would have cut last year’s deficit by more than half. And that’s before you even begin to take into account the lower spending that would result from fewer Americans needing public assistance.

A Reagan-style recovery would have generated even more revenue. At 18.2% of 3rd quarter GDP, revenues would have been $722 billion higher and the deficit chopped by two-thirds. And that’s without raising anyone’s taxes. By focusing on pro-growth policies and generating even an average recovery, the President could have kept his promise to cut the deficit in half.

Since the recession ended in June 2009, real gross domestic product (GDP) has only increased by a total of 7.2%. The average increase in real GDP for the other nine post-World War II recoveries that lasted longer than a year over a comparable 13 quarters is 16.8%. In the strong Reagan recovery of the 1980s, real GDP increased by a total of 19.6%!

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