Posted on 03/28/2004 9:19:33 PM PST by remember
An article titled "Revenues Up, Deficits Down" appeared in the National Review Online on March 25, 2004. It can be found online at http://www.nationalreview.com/nrof_buzzcharts/buzzcharts200403250832.asp. The article purports to be referencing the updated long-term fiscal forecast released last week by the Congressional Budget Office. Following is an excerpt:
CBO projections show the deficit falling next year and the year after. In fact, the deficit falls in 10 of the 12 years covered by this forecast, rising only a miniscule amount in the other 2 years.
There’s also good news in the revenue department: As you can see in the chart above, revenues are climbing faster than expenses in every year projected by the CBO. Most notably, in the next 2 years, revenues are projected to increase by 25 percent. Also note that in the year 2012, the deficit is projected to fall to $38 billion, a whopping 78 percent drop from the previous year. The 2 years after that, the deficit will drop again by more than half, leaving the deficit at a tiny $15 billion.
The article concludes:
The latest projections show a steadily improving fiscal outlook for the near term — when forecasting tends to be at its most accurate. The Bush Boom is sufficiently developed that it is beginning to affect Congressional Budget forecasts.
Table 1-9.
CBO’s March Baseline Projections (billions of dollars)
Actual
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Revenues 1782 1817 2050 2255 2384 2505 2643 2785 3035 3271 3439 3620
Outlays 2158 2295 2413 2528 2659 2791 2924 3057 3211 3309 3473 3635
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Deficit -375 -477 -363 -273 -274 -286 -281 -272 -176 -38 -34 -15
On-budget -536 -638 -537 -466 -482 -509 -519 -523 -439 -310 -314 -302
Off-budget 161 161 174 193 208 224 238 250 263 273 280 287
Public Debt 3914 4385 4762 5048 5335 5633 5927 6212 6400 6450 6496 6525
% of GDP 36.1 38.2 39.4 39.8 40.3 40.6 40.8 40.9 40.3 38.9 37.6 36.1
In contrast, following are the numbers, assuming the adoption of Bush's budget proposals:
Table 1-2.
CBO’s Estimate of the President’s Budget (billions of dollars)
Actual
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Revenues 1782 1816 2027 2211 2351 2470 2595 2738 2847 2996 3151 3315
Outlays 2158 2295 2384 2482 2593 2722 2853 2984 3136 3256 3429 3600
----------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Deficit -375 -478 -358 -271 -242 -252 -258 -247 -289 -259 -278 -284
On-budget -536 -639 -531 -464 -450 -476 -496 -498 -553 -532 -558 -572
Off-budget 161 161 174 193 208 224 238 251 264 273 281 288
Public Debt 3914 4387 4758 5043 5298 5563 5834 6092 6393 6664 6954 7251
% of GDP 36.1 38.2 39.4 39.8 40.0 40.1 40.2 40.1 40.3 40.2 40.2 40.1
Following the CBO baseline, the deficit does go to a "tiny $15 billion" by 2014. If the Congress adopts Bush's budget proposals, however, the deficit will drop only to $284 billion. And if you look just at the on-budget deficit, which excludes the large Social Security surplus, the deficit will be $572 billion in 2014. Hence, Bush's budget effectively proposes that we continue to run half-trillion dollar deficits over the next decade.
What's the difference between the CBO baseline and Bush's budget proposals? Following is a summary:
Table 1-6.
CBO’s Estimate of the Effect of the President’s Budget on Baseline Deficits
(billions of dollars)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
---------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Baseline Deficit -477 -363 -273 -274 -286 -281 -272 -176 -38 -34 -15
Extend Tax Cuts 0 -13 -25 -27 -24 -30 -27 -165 -249 -260 -274
Other Revenue -1 -10 -19 -6 -11 -18 -20 -23 -25 -28 -30
Outlay Cuts 0 28 46 66 69 71 73 74 53 45 35
---------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Budget Deficit -478 -358 -271 -242 -252 -258 -247 -289 -259 -278 -284
As can be seen, the major difference, at least from 2011 on, is the proposed extension of the tax cuts. Now, it's possible to go back and address the following points made by the article:
Most notably, in the next 2 years, revenues are projected to increase by 25 percent.
Some of this increase is due to the projected economic recovery. Receipts dropped from 20.9% of GDP in 2000 to 15.7% of GDP in 2004, their lowest level since 1950. This can be seen in the graphs and tables at http://home.att.net/~rdavis2/recsrc.html. Some recovery from this historically low level was to be expected. Also, some of the increase is due to the child tax credits and other tax cuts which are scheduled to expire in 2005. In any case, the article continues:
Also note that in the year 2012, the deficit is projected to fall to $38 billion, a whopping 78 percent drop from the previous year. The 2 years after that, the deficit will drop again by more than half, leaving the deficit at a tiny $15 billion.
These drops are largely due to the fact that nearly all of the tax cuts are set to expire in 2011. According to Table 1.6 in the CBO forecast, extending the tax cuts will raise the deficit by $249 billion, $260 billion, and $274 billion in 2012 through 2014, respectively. The article concludes:
The latest projections show a steadily improving fiscal outlook for the near term — when forecasting tends to be at its most accurate. The Bush Boom is sufficiently developed that it is finally beginning to affect Congressional Budget forecasts.
No, the latest projections show an improving outlook only in the deficit. Even under the CBO baseline, the public debt will be 36.1% of GDP in 2014, same as it was in 2003. This assumes that all of the tax cuts expire as currently scheduled. Under Bush's proposals (where the tax cuts don't expire), the public debt will rise to 40.1% of GDP. In addition, this does not include the hundreds of billions of dollars that will be borrowed from Social Security and the other trust funds.
It's ironic that the figures in the chart, which depend on the expiration of the tax cuts, will likely be used to argue against that very expiration. On the contrary, the figures actually provide strong evidence that the tax cuts will increase the deficit over the next ten years. In any event, the article is an excellent study in the art of lying with statistics. It also shows that readers must be very skeptical about anything they read, even in many national publications.
Exactly, it works just like unilateral free trade.
No, public debt is where you borrow 50 from the government today and your (or someone else's) children pay back 60 ten years from now. Also, if you look at the graph and tables at http://home.att.net/~rdavis2/debt40.html, you'll see that about 37% of the public debt is currently owed to foreigners. The "we owe it to ourselves" line may be a comforting bromide but it's largely a myth.
In fact, Figure 2-1 in the CBO report is titled "CBO’s Estimates, Using Various Models, of How the President’s Budget Would Affect the Deficit After Accounting for Economic Effects". It shows that the supply-side effects of Bush's proposals are relatively small.
That is even better! We are using OPM (Other people's money) to finance our growth.
Unfortunately, the logic posited in some of the posts here, incuding the lead story, is yet another example of Keynesian-Kool-aid drinking economists chasing their tails. Once I hear a Keynesian explain stagflation, I may start paying attention to them again. Until then, I'll rely upon common sense that we, the great un-washed, can understand. If you want to see where I get my info, travel to polyconomics.com
Yes, I think that we should trust in the wisdom of all those Congressmen who voted for the sunsets to begin with. Seriously, I think that we should never have passed tax cuts that were not sustainable. The only exception might have been relatively small and/or temporary tax cuts when we were in recession. I definitely think that the repeal of the estate tax is a bad idea.
I wonder how many individuals think that about their credit card debt! Anyhow, thanks for the link.
I was under the impression that this was an open forum where ideas are judged on their own merits, not on some predefined political agenda. In fact, I posted the critique of the National Review article here because I figured that it would get more scrutiny here than a liberal board. Since nobody here has disagreed with my analysis, I'm further convinced of its validity.
No, I simply added information that the author had left out. Despite the fact that the chart is labelled "Budget Projections", it shows projections for the CBO baseline BEFORE the Budget proposals are included. The CBO baseline does project that revenues will increase by nearly the 25 percent that the article states (from 2004 to 2006). However, they are doing so after having dropped from 20.9% of GDP in 2000 to 15.7% of GDP in 2004, their lowest level since 1950. In addition, the CBO forecast projects that $38 billion of the added revenues will come from expiring tax cuts. Similarly, the "whopping 78 percent drop" in the deficit in 2012 is largely due to the fact that nearly all of the tax cuts are set to expire in 2011.
Then you state you actually think there are "trust funds".
Anyone that thinks Soc Sec and Medicare are in "trust funds" is, basically, an idiot. A moron. A dupe. A jester. A gullible embicile.
Most people know that the Social Security and Medicare trust funds consist of government bonds and that the original monies have been borrowed and spent by the government. However, anyone who believes that the government will be able to refuse redemption of those bonds is an imbecile (or embicile, as you like to spell it).
Show me the calculations that "public debt" will be 36%. Define "public debt" and then tell me why that's a problem.
The public debt was 36.1% of GDP according to Historical Table 7.1 in Bush's recently released budget. You can see a graph and tables of the debt at http://home.att.net/~rdavis2/debt40.html. As far as its definition, the following is from the Notes on Section 7 at the beginning of the Historical Tables:
Gross Federal debt is composed both of Federal debt held (owned) by the public and Federal debt held by Federal Government accounts, which is mostly held by trust funds. Federal debt held by the public consists of all Federal debt held outside the Federal Government accounts. For example, it includes debt held by individuals, private banks and insurance companies, the Federal Reserve Banks, and foreign central banks.
The reason that the public debt is a problem is that all future taxpayers will have to pay interest on it and the budget's own long-run projections show the public debt and the resulting interest payments increasing sharply (see http://home.att.net/~rdavis2/pro2005.html).
And why do you define "tax cuts" as revenue loss when it's just a change in the RATE of taxation? Are you drinking the Krugman Koolaid?
It's got to be better than the supply-side cider that you seem to be drinking. Summary Table S-9 in the recent Bush budget is titled "Effect of Proposals on Receipts" and it projects that the extension of the tax cuts will cost $936 billion through 2014. If you have a problem with it, take it up with Bush.
You may never ceased to be amazed, but I never ceased to by amazed at the bad conclusions based on errouneous interpretation you put forth.
As to lying in national publications, try the NYTimes, the network news, etc.
And if you want to argue CBO numbers then you are clueless because they've NEVER been accurate. Nor has the the GAO.
It was the National Review article that chose to highlight the CBO projections. I am simply pointing out the errors in its analysis. In any case, what are the erroneous (or errouneous, as you like to spell it) interpretations that you claim to be amazed at? Do you disagree with the basic conclusion that the projected rise in revenues in the CBO baseline is largely due to the expiration of tax cuts?
It should have been done as a condition of the tax cuts. Until there was a consensus on which spending to cut, we should have left taxes well enough alone. I agree with someone who recently said that the tax cuts were actually just tax deferrments. We are expecting our children to pay interest on the additional debt that we're piling up as well as growing projected entitlement costs (see http://home.att.net/~rdavis2/pro2005.html). They will think no better of us for the fact that we "intended" to cut spending.
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