Friday, October 19, 2007

From the Krugman Blog


Failing to Pass the Laffer Test

The revenue boom of the last few years, which mainly depended on booming corporate profits, is over. Here’s a chart from the Congressional Budget Office:

Chart: Congressional Budget Office

And a further slowdown is visible within the fiscal 2007 data: revenue in September was up only 2 percent from the previous year.

To put this in perspective, here’s revenue as a percent of GDP since Clinton took office:

Chart: Revenue as Percent of GDP Since 1993

So everything you’ve heard about how revenues have boomed since the Bush tax cuts is wrong. What really happened was that revenue plunged, as a percent of GDP, in the early Bush years, then staged a partial, but only partial, recovery. And that recovery seems to have run its course.

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