The Rich Get Richer

Sometimes people are surprised to learn that I regularly read the Wall Street Journal. I don't read it for balance, I read it because it has the best non-partisan financial reporting in the country.

Here, for instance is what the New York Times had to say recently about the improving deficit picture and the President's touting of it as evidence that his tax-cutting policies are working:

Mr. Bush said the latest budget figures were evidence that his administration’s program of tax cuts was behind the country’s prosperity. “Together, these tax cuts left nearly $1.1 trillion in the hands of American workers and families and small business owners,” he said. “They used this money to help fuel an economic resurgence.”

But Democrats and independent budget analysts say that government revenues are now only barely above their level of six years ago, before the economy went into a brief recession. They say that this year’s tax receipts appear to be a surge only because the last five years were so weak.

It is a typical "he said, she said" report that provides "balance." The President gets his say, the Democrats get theirs. But do you know anything important about the numbers? Not unless you read the Wall Street Journal:

In announcing a big drop in its estimate of this year's federal budget deficit, the Bush administration was quick to credit itself.

"Tax cuts worked to generate economic growth, and economic growth is now working to raise revenues," White House budget director Rob Portman said last week during an online discussion with the public.

But this explanation falls short. While tax revenue is growing far faster than the Bush administration forecast in its budget projections in February, the nation's economy isn't.

What has changed isn't the size of the economy, but how the economic pie is divided. The share of national income going to corporations and the wealthiest individuals, already large, has expanded, while the share going to typical wage earners has shrunk. Because corporations and the wealthy generally pay income tax at higher rates than does the typical wage earner, that shift benefits the federal Treasury.

U.S. tax revenue for fiscal 2006, which ends Sept. 30, is expected to be 5% -- or $115 billion -- higher, than the administration projected in February. Largely as a result, the budget deficit is expected to be $296 billion this year, instead of $423 billion.

But total economic output is expected to be just 1% larger, before adjusting for inflation, than the White House predicted. After adjusting for inflation, it is projected to be just 0.1% larger. While the unemployment rate is lower than the administration had expected, payroll growth has been slower.

In other words, the rich are getting richer and the poor and middle class are still stuck in what is for them a dead economy. The WSJ explains the details and affects of economic policy better than any American paper. If only their editorial page writers actually read their own paper!

Brad DeLong, whose blog I read regularly for its insights regarding the economy, has more on this and on the sorry shape of reporting in general today.