The other news you won't often hear concerns the soaring tax revenues in the wake of the 2003 supply-side tax cuts. Tax collections have risen by $757 billion, among the largest revenue gushers in history. Receipts, especially from high-income individuals and corporations, have been growing for some two years at nearly twice the rate of spending, which explains the falling deficit. Economic growth is always the key to eliminating red ink, which is why keeping this 63-month expansion rolling needs to be the main domestic priority. This requires making those lower 2003 tax rates permanent, rather than letting them expire in 2010 and socking the economy with the biggest tax increase in history. The more immediate budget brawl between Mr. Bush and Democrats will be how to divide that mere $2.9 trillion between guns and butter. Mr. Bush wants $245 billion more for Iraq and Afghanistan for 2007 and 2008. His overall Pentagon request of $606 billion in 2008 has been lambasted by Speaker Nancy Pelosi as a "huge number" and Democrats are moaning that their cherished social programs will suffer.
In fact, Mr. Bush's request would only bring defense outlays to 4.2% of GDP, or about 20% of total federal spending. That compares to 4.7% of GDP even under Jimmy Carter, and 6.2% of GDP in 1986 at the peak of the Reagan defense buildup (see bottom chart). Budgets are about setting priorities, and if Democrats agree that defeating terrorism is vital they will put it ahead of funding the National Endowment for the Arts.