Michael Barone: Bush well on way to meeting deficit promise

US News & World Report ^ | July 17, 2005 | Michael Barone

[rbmillerjr]

bump tidy bump tidy bump bump bump

Resource bump

[Yankereb]

He's the very conservative newly elected senator from Oklahoma isn't he. He's also a doctor. I'm glad to hear it.

[remember]

The fact is deficits matter, but they matter much less than the BIG things, like: What is our growth rate, what is the tax burden, and what is the spending increase rate? And lastly, what is total debt?

The fact is that if the deficit is 3% of GDP, inflation is 2% and the economy grows 3%, *then* the total debt/GDP ratio of 50% remains near to what it was (up .5%). We could have such deficits for a decade or two without too much harm. At 50% debt/GDP, in fact, 1% deficits are permanently sustainable even under zero inflation and low growth.

I agree that the total debt is much more important than the deficit. However, the relationship between the deficit and the debt is a little different than you describe. If the deficit is 3% of GDP and the economy grows 3%, then the total debt/GDP will move toward 100% (though it may move slowly). That makes sense since the deficit/(GDP growth) = (new debt)/(new GDP) = 100%. Inflation is important only in that it will likely mean higher interest rates which, in turn, will mean higher interest payments on the debt. Points 4 and 5 near the bottom of the page at http://home.att.net/~rdavis2/def06.html talks more about the relationship between the deficit and the debt.

If you have high economic growth and low increases in Govt spending, you have the ability to eventually end any deficit and pay off any debt.

Since spending is one of the two key determinants of the deficit (revenues being the other), that is true. On that subject, we still face very large projected deficits with the retirement of the Boomers. Following are the long-run budget projections from the 2006 U.S. Budget:

           LONG-RUN BUDGET PROJECTIONS OF 2006 BUDGET POLICY: 1995-2075
                                 (Percent of GDP)
                     -------------------------------------------------------------
                      1995   2005   2015   2025   2035   2045   2055   2065   2075
                     -------------------------------------------------------------
Discretionary Spending Grows with GDP*:
Receipts...........   18.5   16.8   18.5   19.1   19.6   20.2   20.9   21.5   22.0
Outlays............   20.7   20.3   19.4   21.8   24.8   27.6   30.8   35.1   40.4
  Discretionary....    7.4    7.9    5.9    5.9    5.9    5.9    5.9    5.9    5.9
  Mandatory........   10.1   10.9   11.6   13.8   15.8   16.9   18.0   19.5   21.2
    Social Security    4.5    4.2    4.4    5.4    6.0    6.0    6.1    6.2    6.4
    Medicare.......    2.1    2.4    3.3    4.6    6.0    7.0    7.9    9.1   10.4
    Medicaid.......    1.2    1.5    1.9    2.1    2.3    2.6    2.8    3.0    3.3
    Other..........    2.2    2.8    2.0    1.7    1.5    1.3    1.2    1.1    1.0
  Net Interest.....    3.2    1.5    1.9    2.0    3.1    4.8    6.9    9.7   13.3
Surplus/Deficit (-)   -2.2   -3.5   -0.9   -2.7   -5.2   -7.4  -10.0  -13.6  -18.4
Public Debt........   49.2   38.6   35.6   38.1   58.7   90.4  130.0  181.3  249.0

Source: Budget of the United States Government, FY 2006,
        Analytical Perspectives, page 209, Table 13-2

As you can see, the deficit and public debt are projected to reach minimums of 0.9% of GDP and 35.6% of GDP in 2015. They are then projected to climb, reaching 18.4% of GDP and 249% of GDP by 2075.

[Coop]

Intentional bias may not be at work here, just the bias that is inevitable in a mainstream press in which about 90 percent of the reporters and editors are Democrats. With a Democratic president in office, they are on the lookout for good news and present it lavishly; because they assume Democratic economic policies will be good for the country. With a Republican president in office, they are on the outlook for bad news; because they assume Republican economic policies will be bad for the country.

Mr. Barone is one excellent writer. He really gets to the gist in the above section.

[Ma3lst0rm]

I don't blame them. Why would anyone want to continue following people who appear more and more insane. Its gone far beyond mere political differences, the current Democrat leadership is intent on driving their party over a cliff.

[silverleaf]

Barone is good...always enjoy his articles.

[silverleaf]

Barone is good...always enjoy his articles.

[atlanta67]

you cant cut fat or waste and abuse in govt. govt is not subject to market principles and has no competition

[KevinDavis]

No they will complain about something else...

[Right_in_Virginia]

BTTT!!

[atlanta67]

""I have a very liberal, lawyer daughter-in-law who got her undergraduate degree in economics""


I have a BS and MS in economics, the economics department should revoke her degree.


simply ask here this:


does a 100% marginal tax rate raise the most revenue possible?

[atlanta67]

""They are then projected to climb, reaching 18.4% of GDP and 249% of GDP by 2075""


that will never happen

[I_be_tc]

bttt

[My2Cents]

LOL...I laugh, but you're right.

[remember]

They are then projected to climb, reaching 18.4% of GDP and 249% of GDP by 2075

that will never happen

In fact, I agree. These are projections, not predictions. As such, they are estimates of the debt and deficit if current law does not change. However, something is likely to give out long before the debt and deficit reach those high levels and we will be forced to change current law. Those changes will likely include higher taxes and/or lower benefits and, as a result, those numbers will never happen.

In any case, it should be noted that the decline in the deficit from $333 billion to $162 billion does not include the monies being borrowed from Social Security and the other trust funds. Following are the reported ("unified") deficit, the deficit including the monies being borrowed from Social Security (the "on-budget" deficit), and the deficit including the monies being borrowed from all of the trust funds (the "gross" deficit"):

                    Budget Totals (billions of dollars)

                    Actual Estimate
                      2004   2005   2006   2007   2008   2009   2010
---------------------------------------------------------------------
Unified deficit        412    333    341    233    162    162    170
On-budget deficit      567    508    535    438    388    381    375
Gross deficit          595    587    645    578    524    515    509
Gross Federal Debt    7355   7942   8587   9165   9689  10204  10713
GDP                  11554  12271  12966  13681  14429  15198  16001

                    Budget Totals (percent of GDP)

                    Actual Estimate
                      2004   2005   2006   2007   2008   2009   2010
---------------------------------------------------------------------
Unified deficit        3.6    2.7    2.6    1.7    1.1    1.1    1.1
On-budget deficit      4.9    4.1    4.1    3.2    2.7    2.5    2.3
Gross deficit          5.1    4.8    5.0    4.2    3.6    3.4    3.2
Gross Federal Debt    63.7   64.7   66.2   67.0   67.1   67.1   67.0

Source: 2006 Mid-session Review, Tables S-1, S-8, S-16

As can be seen, even the most recent improved estimates project that the debt will continue to increase by over a half trillion dollars per year through 2010. As a percentage of GDP, the gross deficit will drop from the current 5.1% of GDP to 3.2% of GDP. That is close to as good as things are likely to get as the Boomers will then start retiring, bringing us closer to the Budget's long-run projections, listed in my prior message.

[driftless]

I've tried posing those arguments to her with no effect. She's a very nice person and very intelligent in other matters, but like all liberals, she thinks the solution to every financial problem is to raise taxes. She's a typical bleeding-heart lib who would rather give a fish to a hungry person than teach them how to fish.

Her view is the view that says all poor people are incapable of improving themselves without massive aid from government. I occasionally bring up little real-life vignettes to make her think. But make no mistake, she's a diehard lib and it will take a lot of persuasion to change her mind. She really believes that all elected and most other Republicans are crooks. When I asked my wife if that included me, my wife said that I'm one of the few exceptions. I had to laugh over that one.

[atlanta67]

in order for your daughter in law to be right, the labor supply curve would have to be infinitely inelastic...and no one thinks that.

actually Laffer simply expanded upon the idea that lowering taxes would result in more revenue. That idea was initially discovered by an Egyptian philosopher about 5000 years ago. HE noted that when Pharoh raise taxes, grain harvests fell. When they were cut, grain harvests rose

[rhema]

[Extremely Extreme Extremist]

Where are the Bush-bashers? They've always been quick to criticize the deficit spending, and here's an article that states we're whittling down the deficit, and the bashers are nowhere to be found? I guess they don't gravitate toward good news.

First of all, we're not Bush-bashers, we're Bush critics. There's a big difference because we respect Bush but we disagree with him on some policy issues.

Second of all, there's nothing to celebrate. Gov't spending continues to skyrocket and there's still a deficit. Even in 2008 the deficit will "only" be projected at just over 100 billion. Yeah, let's break out the champagne.

[syriacus]

Posted on Free Republic 7/18/2007:
The Incredible Shrinking Deficit -- "The Office of Management and Budget announced last week that the annual deficit, estimated at $400 billion just a few years ago, will be $205 billion by the end of this fiscal year (which ends in September)."