Kudlow on the budget
From his article, Bush’s Supply-Side Budget: Its defining aspect is that it is pro-growth
Beyond this important threshold, Bush deserves credit for his toughest effort thus far to restrain federal spending. Overall discretionary spending is aimed at slightly less than the projected inflation rate. Excluding homeland security and defense, discretionary spending actually falls in inflation-adjusted terms. There are also some tentative efforts in the budget to reduce the growth rate of entitlement spending, especially Medicaid. And the administration is finally waging war on farm-sector welfare queens.
Overall federal spending as a share of GDP is projected to trend around 19.5 percent. This is a historically low spending share of the economy. If maintained, more resources will stay in private hands to foster entrepreneurship, new business creation, jobs, and wealth.
The deficit, meanwhile, is projected to fall to about 1.3 percent of GDP from the current 3.5 percent over the next 5 years. This is well below European and Japanese deficits. Should the U.S. economy grow faster than the 3.3 percent yearly estimate in the OMB baseline, then the budget will move into balance in just half a decade.
More important, at lower tax rates, Treasury coffers are rapidly filling up with rising tax collections. The Laffer Curve is alive and well. Over the past twelve months individual income-tax collections have increased by 15 percent. Non-withheld individual collections, which include stock market-generated capital gains and dividends, have increased 14 percent.
I predict that the president following GWB will benefit greatly from these measures, just as Clinton benefited from Reagan’s tenure.