Tax Tidal Wave

From Brian Wesbury at First Trust Advisors:

"During the 12 months ending in September 2006, the household survey reported 2.54 million new jobs. Going back 24 months shows 5.5 million new jobs, an annual average of 2.75 million. This exceeds the booming 1995-2000 average of 2.34 million new jobs per year. The household survey, in contrast with the establishment survey, has consistently signaled a resilient economy. And it continues. In the past two months, the household survey has expanded by 261,000 per month, while the establishment survey rose by an average of just 120,000."

"This helps to explain the awesome tidal wave of tax revenues flowing into federal government coffers. Tax revenues grew 12% in 2005 and are up by 11.8% this year. Despite lower tax rates, total federal revenues are $410 billion higher this year than they were at their previous high water mark in 2000."

"The problem is on the spending side. Federal government spending this past fiscal year was $907 billion higher than it was in 2000 -- the equivalent of adding both the Australia and Ireland GDPs to annual spending. If ranked, total annual U.S. government outlays of $2.7 trillion in 2006 would be the world's fourth largest GDP: Just below Germany, but 10% larger than China's entire economy."

"The lesson of all this is that when tax cuts and technology work together to encourage productivity growth, the economy and markets perform well. Massive positive revisions to employment and incomes, rising stock prices and a flood of new tax revenues paint a much different picture than conventional wisdom had expected. But history is clear. As long as government policies do not hinder entrepreneurship, the U.S. economy can overcome even the most daunting of challenges. Have faith."

Read the whole article here.