Excerpt from our One Page Annotated Wall Street Journal Summary (receive it by email every morning by signing up here):
THE OUTLOOK: As Bigger Piece of Economic Pie Shifts To Wealthiest, U.S. Deficit Heads Downward
Summary: The Bush administration recently credited itself with stimulating the economic growth that resulted in higher tax revenues and thus a smaller than expected budget deficit. But the improvement is in fact due to a shift of income to the wealthy: the proportion of national income going to wealthy individuals and corporations has risen, while the share going to typical share owners has shrunk. Since wealthy individuals pay higher taxes, that has led to the increase in tax receipts. Tax receipts are expected to be 5% higher than what was forecast in February, but inflation adjusted GDP is expected to be only 1% higher. The unemployment rate is lower than previously forecast, but so too is payroll growth. Economists believe the supply-side effects of President Bush's tax cuts on the whole economy have been minimal.
Comment on related stocks/ETFs: The data confirm that the Bush tax cuts strongly favored the wealthy. They go a long way to explaining the disparity in results between the low-end and discount retailers and the high-end and luxury retailers. In particular, this helps explain the June same store sales data which showed weakness in Wal-Mart's (NYSE:WMT) sales and relative strength in Nordstrom (NYSE:JWN), Saks (NYSE:SKS) and Neiman Marcus.