The Incredible Shrinking Deficit

Townhall.com ^

[fabrizio]

The Bush administration has a lot of problems on its plate, both foreign and domestic, but the budget deficit is not one of them. This is one area where President Bush's policies have been a resounding success, though don't expect to see this reported on the nightly network news shows.

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).

That's still a lot of money in a nearly $3 trillion-a-year budget, but it is 1.5 percent of the gross domestic product (the measure of everything that our economy produces each year) and it's racing downward.

The latest forecast represents a $43 billion decline from last year's deficit, which has been shrinking for three years in a row.

The administration says it is solidly on track to balance the budget in five years when it will turn into a $33 billion budget surplus by 2012. But I think OMB is much too conservative in its timeline projections. If the economy continues to perform well, as I think it will, and the president keeps the lid on federal spending, as he plans to do, we will likely reach a surplus well before 2012.

Meantime, there are valuable lessons to be learned from these latest budget projections -- especially by the gloom-and-doomers who predicted the tax cuts would plunge the government into unending deficits from which we would never recover -- sacking the economy and worsening unemployment.

These are the same people who said President Kennedy's tax-rate cuts would lead to years of red ink and all sorts of economic dislocations when, in fact, they led to a budget surplus by 1969 and a much stronger economy.

The same people said President Reagan's tax cuts would wreak havoc with the government's fiscal solvency, weaken the economy and worsen inflation. But the economy came roaring back after the worst recession since the Great Depression, inflation abated, the deficit eventually began to come down and we ended up with budget surpluses in the 1990s.

And the same people said Bush's tax cuts would produce a long-term fiscal disaster and deficits as far as the eye could see. In fact, the well-timed tax cuts pulled the U.S. economy out of its sharp decline in the aftermath of the 9/11 terrorist attacks, and the resulting economic growth they triggered has produced steadily rising tax revenues that have steadily eaten into the deficit year after year.

As OMB correctly reported last week, "A growing economy delivered higher-than-expected tax receipts." The people who said that would not happen have been strangely silent ever since, because the results are irrefutable. A resurgent economy has been expanding for 22 consecutive quarters with a growth rate (GDP) that has averaged 2.9 percent a year since Bush came into office. "On an inflation-adjusted basis, the economy is now more than 16 percent larger than in 2001," OMB reported.

Will that growth rate continue, producing ever-higher tax revenues for the government to pay its bills? The administration's economists think so, projecting that GDP growth will continue to average 3 percent a year from 2008 to 2012.

Will that growth rate continue, producing ever-higher tax revenues for the government to pay its bills? The administration's economists think so, projecting that GDP growth will continue to average 3 percent a year from 2008 to 2012.

While the overall economy produces this growth, it's the workers who pay the bulk of the tax receipts out of their paychecks, and more money is pouring into the U.S. Treasury because more people are working.

Since the Bush tax cuts fully took effect in 2003, the American economy has created more than 8.2 million new jobs, cutting the unemployment rate to 4.5 percent. That rate, by the way, is on average lower than the rates for the 1960s, 1970s, 1980s and 1990s, OMB says.

Here's a startling fact that puts these numbers into sharper perspective: The economy has had the longest stretch of nonstop job-creation growth since June 1990.

That's why federal tax receipts have risen by more than 37 percent over the past three years and will grow by an additional 7 percent this year.

That said, it could be dangerous to focus solely on the deficit at the expense of economic growth. The Democratic majority in Congress, feigning concern about the deficit, has proposed more than $200 billion in additional spending over the next five years and huge tax increases that will include letting parts of the Bush tax cuts expire in 2010.

That would eliminate some of the strategic tax cuts that in turn would eliminate incentives to invest, slow down the economy's engine of growth and enlarge the deficits.

Bush, sharpening his little-used veto pen, has sent word to Capitol Hill that "this isn't going to happen on my watch."

Donald Lambro is chief political correspondent for The Washington Times.

[syriacus]

Nice news.

[EagleUSA]

You will never see this printed in the Democrat-controlled MSM. Any GOOD news for America, is BAD news for the defeatist, negative, crepe-hanging socialists.

[lonestar67]

President Bush has done an astounding job as President.

His public representations as a failure are ridiculous.

[gunservative]

Oh come on, Bush never vetoed a single spending bill. The deficit could have been eliminated at least two years ago by eliminating pork and earmarks, something the Republicans just couldn’t be bothered to do. The Democrats, on the other hands, will NEVER do it.

[misterrob]

The administration is being a bit too optimistic about growth projections which is why they need to look at ways to decrease spedning. If we get 2% GDP growth in a time when gas/oil prices are at the high end of the curve and housing is in a bad way then that would be impressive.

What the MSM wants to ignore is the difficulties the economy was facing in later 2000 when the tech sector was imploding in some cases and then the impact of 9/11. Someone was talking about how the Dow has just about doubled from it’s low point podt 9/11. Overall we are in a good place but people need to remember that economies run in cyles...

[misterrob]

The dems will cut spending but in areas like defense, intel and national security.

[Thermalseeker]

Oh come on, Bush never vetoed a single spending bill.

Exactly! Call me when the national DEBT is reduced to zero.....

[zencat]

Tax cuts have the amazing ability to increase government revenues, and politicians (of either party) are addicted to spending it.

[Atlas Sneezed]

If this were a Democrat in office, someone would have stepped in by now to remind us that the annual deficit still means that the national debt is growing.

But the digging deeper into debt is proceeding now at a slower rate.

And excludes the neglected entitlement debt.

[GeorgefromGeorgia]

There will probably not be a surplus in our near future, RATS will raise taxes, that will slow down the economy, reducing revenues. Also, RATS will spend, spend, spend.

[RKV]

Our corporate tax rates are actually pretty high. Analysis suggests we could increase revenue by cutting rates (Laffer Curve). That said, we might want to wait until the next economic slowdown (and it will come) and use this to help get us out of a recession.

[gcruse]

“Also, RATS will spend, spend, spend.”

As opposed to republicans who spend, spend, spend. Big difference. /s

[Non-Sequitur]

Also, RATS will spend, spend, spend.

In the last 6 Clinton budgets total government spending rose from $1.6 trillion in FY 1996 to $1.8 trillion in FY 2001. In the first 6 Bush budgets total government spending rose from $2 trillion in FY 2002 to $2.8 trillion in FY 2007. Which party is the one that will spend, spend, spend?

[Travelgirl]

Big difference. /s

The big difference is tax cuts vs tax increases.

[GeorgefromGeorgia]

Answer: Both parties.
Bush threw money at NCLB for little benefit, and the Medicare drug plan added much $$. I know that Defense and Homeland Security expenditures have expanded significantly.
Democrats will likely reduce Defense spending and spend more on social programs.
Here is a good link to the huge danger ahead of us.
http://mwhodges.home.att.net/summary-b.htm

http://www.federalbudget.com/

[gcruse]

“The big difference is tax cuts vs tax increases.’

A tax cut without reining in spending is a gamble at best, and shoving off debt onto the next generation. It’s no better than California issuing bonds to pay for current expenses. Very poor money management from a government that can’t say ‘no.’

[remember]

Answer: Both parties.
Bush threw money at NCLB for little benefit, and the Medicare drug plan added much $$. I know that Defense and Homeland Security expenditures have expanded significantly.
Democrats will likely reduce Defense spending and spend more on social programs.
Here is a good link to the huge danger ahead of us.
http://mwhodges.home.att.net/summary-b.htm

http://www.federalbudget.com/

Both parties likewise promote the myth of the "Incredible Shrinking Deficit". The following table shows numbers from the just released Mid-Session Review from which the $205 billion deficit figure mentioned in the Townhall.com article comes:

    MID-SESSION REVIEW, BUDGET OF THE U.S. GOVERNMENT, FISCAL YEAR 2008
                         (in billions of dollars)

                            Actual  Estimate
                            ------  ----------------------------------------
Budget Totals                 2006   2007   2008   2009   2010   2011   2012
---------------------------- -----  -----  -----  -----  -----  -----  -----
Receipts....................  2407   2574   2659   2803   2954   3095   3300
Outlays.....................  2655   2779   2918   3016   3078   3184   3267
Deficit(–)/Surplus..........  -248   -205   -258   -213   -123    -89     33
Change in debt held by public -237   -228   -264   -231   -144   -111     11
On-budget deficit...........  -434   -385   -460   -429   -358   -344   -207
Change in gross federal debt  -546   -513   -565   -558   -495   -482   -374  

Debt held by the public.....  4829   5057   5322   5553   5697   5808   5797
Gross Federal debt..........  8451   8964   9529  10087  10582  11064  11438
Gross Domestic Product (GDP) 13065  13722  14453  15222  16004  16809  17646

Source: Mid-Session Review, FY 2008, Tables S-1, S-7, and S-13, online at
        http://www.whitehouse.gov/omb/budget/fy2008/pdf/08msr.pdf

As can be seen, the article is referring to the "unified deficit". This deficit includes the large surpluses currently being run by Social Security and other trust funds. The gross federal debt, on the other hand, does not include these surpluses, has been increasing by over a half trillion dollars per year since 2003 and is projected to continue increasing by over a half trillion dollars per year through 2009. The gross federal debt is the $8.8 trillion debt referenced in your second link. Hence, the proper name for this thread should probably be "The Incredible Increasing Debt"!

In any case, the following graph may give a clearer view of the difference between the "Unified Deficit" (the purple line) and the increase in the gross federal debt (the red line).

The actual numbers and sources are at http://home.att.net/~rdavis2/def08.html.

[GeorgefromGeorgia]

Someone once said that the public just doesn’t want cuts in THEIR bennies JUST to balance the budget. There is NO natural constituency for fiscal matters. There are polls where people when asked say they want a balanced budget and they say yes. However, when asked if cuts in student loans, ag subsidies, welfare, food stamps, etc. the public says don’t cut.
We came within one vote of passing the Balanced Budget Amendment. Five Democratic Senators had declared in their campaigns that they were for the BBA, including Feinstein, Dorgan, etc. They all voted against it. That would only have balanced general receipts and revenues, not SS. Still, it would have institutionalized fiscal balance in some form.
The Federal Government’s only way out of this box is to either declare bankruptcy one day or print money (causing inflation-the hidden tax). The Romans had a problem like this with Emperors and their spending. Nero secretly had the mint lower the amount of silver in the coinage. Eventually the people figured it out and the financial disaster that followed was a big part of his demise.

[gathersnomoss]

Bush is too modest for his own good. Shout it, GW.