Economic growth is the key to increasing living standards. Our economy has been growing strongly. with real gross domestic product increasing at a 5.3 percent annual rate in the first quarter of 2006.
Growth means higher productivity, and higher productivity translates directly into higher wages. Productivity has also grown strongly, with the most recent numbers showing 3.5 percent annual growth since the business cycle peaked in the first quarter of 2001.
Economic growth and productivity growth are also important to the government's budget. With strong growth in revenues, we are ahead of pace to meet the president's goal of cutting the deficit in half by 2009.
To date this year, tax receipts are up 11 percent compared to a year ago, reflecting an economy that is growing, expanding and creating jobs. Significantly, the Congressional Budget Office is now projecting the 2006 budget deficit to be down to $350 billion or perhaps as low as $300 billion, or about 2.3 percent of GDP.
These numbers are encouraging, particularly since this is a year during which the federal budget is strained because we are fighting a war and rebuilding after unanticipated natural disasters on a major scale.
Indeed, the evidence suggests that strong economic performance is improving revenues. Economic growth and spending restraint, not higher taxes, are the solution to reducing the deficit.
To maintain these benefits, it is essential to encourage investment and saving. Because we have a global capital market, investment and saving are distinct. We are able to finance high levels of investment despite our low saving rate because others are willing to invest in us, but they will not be willing to continue to do that if the after-tax rate of return on that investment is reduced to levels that are not internationally competitive.
In order to remain internationally competitive, it is important for our government to focus on changes to our tax system that will encourage both domestic saving and also encourage global investment. |