When President Bush pledged in 2004 to cut the deficit in half by 2009, critics guffawed. The Boston Globe headlined a story, “Bush’s plan to halve federal deficit seen as unlikely; higher spending, lower taxes don’t mix, analysts say.” “Fanciful,” “laughable” and “all spin,” said the critics. Well, it turns out that 2009 might be coming early this year. The 2004 deficit had been projected to hit $521 billion, or 4.5 percent of gross domestic product. Bush’s goal was to cut it to 2.25 percent of GDP by 2009—not exactly as stirring a national goal as putting a man on the moon, but one that was nonetheless pronounced unattainable. This year, the deficit could go as low as $300 billion, right around the 2009 goal of 2.5 percent of GDP.Growth did it.
The key to the reduction is revenue growth, which has been stoked by economic growth. Government revenues are up 12.9 percent in the first eight months of this year over the same eight-month period last year—without any tax increases. When individuals, investors, and corporations have more cash in a growing economy, they send more to the federal government in tax payments. This, despite—or, more accurately, because of—a couple of rounds of Bush tax cuts that were supposed to have been fiscally ruinousGrowth caused by tax cuts. It's not magic.