Thursday, July 13, 2006

A thought on revenue and economic growth

With regard to the Monk's post on revenue below:

Dennis Gartman, the author of the eponymous Gartman Letter, a financial markets daily publication (subscriber only) is an unusually perspicacious observer of many things financial (and political).

One of his most powerful theories is that the one economic number that you can always trust implicitly is tax revenue paid to federal, state and local governments. Businesses do not pay taxes on phantom or expected profits, only on realized profits. [Americans, he finds, are generally excellent in paying the government its due.]

From the 40s to the early 90s, government tax revenue very closely matched that of GDP growth, within say 0.5%. In the past few years with GDP rising 3-4% tax revenues have been rising 9-11% over the same periods - a stunning break from tradition. And the trend is that the spread is widening.

But this strong growth doesn't seem to be reflected in the tepid employment growth numbers and the horrifying trade deficit numbers. Why? The way in which we measure trade and economic growth, Gartman argues, is suited more to a 19th century mercantilist economy than the heavily internet and service oriented one today. One of his most compelling questions is how many people do you know who aren't covered by either the household (unemployment rate) or the establishment (payrolls growth) surveys?

How great is this growth? Revenues are RISING with LOWER tax rates.

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