I had to stop and make sure I had really picked up the New York Times at my neighborhood Starbucks. Squinting in the brilliant sunlight of a beautiful fall afternoon, I read this bright idea on page one of the Times:
The most important [reason the country ran up a surplus in the late 90s] was the fact that the economy grew more rapidly than expected. The faster growth pushed up incomes and caused more tax revenue to flow into the Treasury.
Two bi-partisan commissions have released their recommendations on deficit reduction this week. Both, Leonhardt says:
. . .do a pretty good job, but not quite good enough, of focusing on economic growth. The most pro-growth part of both proposals — the Domenici-Rivlin plan and the one from Erskine Bowles and Alan Simpson — is their emphasis on tax reform. Today’s tax code is a thicket of deductions, credits and loopholes that force people to change their behavior and waste time trying to avoid too large of a tax bill. A tax code with fewer deductions and lower rates — which, to be clear, is not the same thing as a tax cut — would instead let businesses and households focus on being as productive as possible. The potential to make good money would drive more decisions, and the ability to qualify for a tax break would drive fewer.
I’m not an economist, but the emphasis on invigorating the private sector and reforming the tax code makes all kinds of sense and is a welcome alternative to the efforts over the last two years to spur the economy through government spending.