In an article about congressional negotiations aimed at reducing the deficit and eliminating jobs, the Washington Post explained that there had been a sharp drop in the size of the deficit since the Republicans took over Congress in 2011:
"Since then [January, 2011], a series of budget deals — and an improving economy — have dramatically slowed federal borrowing. On Wednesday, the White House budget office announced that the government recorded a $680 billion deficit in the fiscal year that ended in September, less than half the size of the shortfall President Obama inherited in 2009 when measured as a percentage of the economy."
Actually, the sharp drop in the deficit cannot be explained by economic growth over the last three years. In January of 2011, the Congressional Budget Office projected year over year growth for 2011, 2012, and 2013 of 2.7 percent, 3.1 percent, and 3.1 percent, respectively. In fact growth was 1.8 percent in 2011, and 2.8 percent in 2012. We don't yet have full year data for 2013, but GDP growth is virtually certain to be under 2.0 percent.
Since the economy has grown considerably slower than was predicted, growth cannot explain the lower than projected deficits. The explanation instead is the cuts made to the budget, as well as the ending of the Bush tax cuts for high income households. The upward redistribution of income, along with the sharp rise in the stock market, has also increased revenue.
This impact shows up not just as additional capital gains taxes, but also as a result of capital gains income being recorded as normal income. This happens every time there is a sharp increase in asset values. Growth in national income has exceeded growth in output by almost 1.5 percentage points since 2010, which is the sort of gap that would be expected given the sharp rise in the stock market over this period.
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