The Terrible State of Our Economy?
Our nation’s economy appears to be slowing, and leading Democrats are portraying the current state of the nation’s economy as perilous and unfair. Hillary’s principal theme these days is “saving the middle class.” The housing market is faltering. Many jobs have gone overseas. Many people tell pollsters that they think the nation is already in a recession. In fact, today’s economic conditions are more positive than critics admit.
In the first place, it now seems certain that the Bush tax cuts of 2003 stimulated the economy. Individual income tax receipts, according to the Congressional Budget Office, have soared by 46.3% in four years. In 2007, the IRS collected a total of $2.568 trillion, 6.7% more than the year before. The wealthy paid much of the bill; in 2005, the richest 1% paid 39% of all income taxes, up from 37% in 2000. (At the same time, the bottom 50% of families enjoyed an average tax rate that fell by a third to 3%.) Corporate tax receipts, according to the CBO, “are at the highest level recorded since the late 1970s.” Federal receipts have climbed by $785 billion since the tax cuts, amounting, according to the Wall Street Journal, to the largest four-year revenue increase in American history.
For fiscal 2007, the CBO predicts a federal budget deficit of $158 billion, a $96 billion decline from 2006. As a share of the economy, deficit spending is expected to equal 1.2% of GDP, down from 1.9% in 2006. Federal spending (despite Iraq and the continued impact of Katrina) is growing at a lower rate, up just 2.8% last year, comfortably below the 7.3% average over the previous five years. Total federal outlays will exceed 19.9% of GDP in 2007, down from 20.3% last year.
Although it has been fluctuating, the stock market is doing well. Even after the mini-panic of October 19, the Dow was up 8.5% for the year. Moreover, as Bank of America economist Mickey D. Levy has reminded us, the Federal Reserve stepped in during the crash of 1987 and the crisis of 1997, and is prepared to do so again. Levy concluded recently in the Wall Street Journal, “Recession is not in the cards.” The Congressional Budget Office declares that “the most likely scenario is that economic performance will remain sound.”
The extent to which we purchase imported goods is troubling to some. Still, American exports are rising; over the past four quarters, according to the Treasury Department, the growth rate was 7.1%. Levy writes, “Strong U.S. exports and less reliance on imports, reflecting healthy economies overseas and the weaker U.S. dollars, are boosting production and job creation here.” The Commerce Department recently reported that the trade deficit narrowed in August for a sixth consecutive month, revealing not only a cheaper dollar but also strong global growth. As for the flight of jobs overseas, see Stephen J. Rose, “The Myth of Middle-Class Job Loss,” Wall Street Journal, October 24, 2007.
The Bureau of Economic Analysis recently reported that real GDP in the second quarter of 2007 was up 3.8%. In the third quarter it hit 3.9%. In August, disposable personal income increased $37.2 billion, prompting retailers and investors to believe that consumers will continue to spend. Retail sales rose solidly in September. The CBO estimates that consumer inflation will remain slightly above 2% for the next year and a half.
The U.S. Treasury Department reports that in September, 110,000 new jobs were created, “the 49th straight month of job gains.” The nation has added 8.4 million jobs since August, 2003. The Department declares proudly that the United States has the strongest capital markets in the world.
September unemployment stood at 4.7%, “close to its lowest reading in 6 years.” Real wages increased 2.2% over the past 12 months ending in August, meaning “an additional $720 above inflation for the average full-time production worker over the last year.”
There is even a bit of good news about the post-bubble housing market: The Commerce Department reports that in September sales of new homes rose by 4.8%.
The thorn in the economy that gets special attention from Democrats and the media is the inequality of wealth, a gap that has been widening for three decades. In 2005, according to the Internal Revenue Service, the top 1% earned 21.2% of all adjusted gross income, up from 19% a year earlier. The bottom 50% earned 12.8%, down from 13.4% in 2004. “Skills gaps yield income gaps,” President Bush declared, and of course this accounts for much of the disparity. Tied to the skills issue is the fact that about two-thirds of poor families today are single-parent households, the products of bad decisions to have children out of wedlock.
So we have economic problems and things, as always, could be better. Still, we remain the envy of the world. Ask our immigration officials.