The conventional wisdom in Washington, D.C., is that the Bush tax cuts, due to expire in 2010, won't be extended. The recent Democratic budget proposal, for instance, demands that the tax cuts get paid for to the tune of $200 billion a year starting in 2011. Well, maybe the child tax credit and marriage penalty stuff might get saved, but certainly not the marginal rate cuts and the reductions in dividend and capital-gains taxes.
But here's a contrarian view I often hear from conservatives: Tax receipts are coming in so far above estimates that the budget could move back into surplus next year. With the budget back in the black, it will be hard for Democrats, whether or not they gain the White House in 2008, to argue against extending the Bush tax cuts.
Since 2001, the economy has added $1.5 trillion in debt, with the tax cuts getting plenty of blame, though a revenue explosion the past two years has brought the deficit back down from 3.6 percent of gross domestic product in 2004 to 1.9 percent last year.
Is this all conservative wishful thinking? Consider this: Just a few hours ago, I got off the phone with Richard Kogan, a budget expert at the leftward-tilting Center on Budget and Policy Priorities.
Kogan, to my surprise, didn't rule out such a scenario, explaining that "Congress hates surpluses." It's his economic opinion that the budget could indeed soon shift back into the black as it did in the late 1990s. But he also warns that it would be foolish to assume tax receipts will continue to come in at a double-digit pace regardless of the business cycle.
A hard economic slowdown or recession could slow that flood to a trickle. Yet the continued flood of tax revenue is itself one sign that the economy may be healthier that one might think given the housing slowdown.
And there's this addendum: A very connected liberal economist E-mails me the following about 2008 Democratic front-runner Hillary Rodham Clinton and the 2003 capital-gains tax cut: "I actually think that Clinton may keep the capital-gains tax cut if she gets in. Bill campaigned on it back in 1992 and certainly didn't object when [Newt] Gingrich pushed it through Congress."