Incredible Shrinking Deficit

2004 - $413 billion
2005 - $318 billion
2006 - $248 billion
2007 - $205 billion

The New York Times's Paul Krugman, in December, wrote that President Bush "plunged the budget deep into deficit by cutting taxes on dividends and capital gains even as he took the country into a disastrous war." Senator Clinton went to the Senate floor in February of this year to speak of the "fiscal recklessness" of the Bush administration, which she charged had contributed to "record deficits." In March, Senator Schumer, who is now the chairman of Congress's Joint Economic Committee, spoke of "budget excesses of the past six years" that have brought us "a mounting debt to the rest of the world."

But as the shrinking figures above show, in fact the deficit is shrinking. When you look at it as a percentage of GDP, the decline is even more striking:

2004 - 3.6%
2005 - 2.6%
2006 - 1.9%
2007 - 1.5%

As the mid-session review released yesterday by President Bush's Office of Management and Budget says, the 1.5% of GDP figure is well below the 40-year average of 2.4%. It's also smaller than the deficit was in the first three years of the Clinton administration. The deficit numbers would be even better but for the war, though it is costing only $12 billion a month.

Now is not the moment to become complacent about the deficit. The Democrats who control Congress are readying to spend with abandon on everything from government-funded health care for the children of the upper-middle-class to pork gussied up as "homeland security" grants. Not to mention that the Democrats are obstacles to confronting longer-term threats to budget balance, such as spending on Medicare and Social Security. The current surpluses in those entitlement programs mask the red ink that will start to flow once baby boomers retire and fail to be replaced in the workforce by the new immigrants that Congress is refusing to allow in and by the dangerously low rate of reproduction.

But neither is it the moment to panic about the deficit and do what Democrats want, which is to roll back President Bush's tax cuts. Those tax cuts have increased tax receipts, especially on capital gains, and the economic growth that they spurred has led to growth in tax receipts, and a shrinkage in the deficit as a percentage of GDP. The bottom line is that those like Mr. Krugman and Mrs. Clinton who accused the Bush administration of fiscal recklessness and plunging America into deep deficits were just plain wrong.