As things keep going down hill, the Bush administration is about to take the next step in damage control on the deficit. Last year's deficit set a record at $375 billion, helping drive the value of the dollar down and the price of energy and other imports up.
Knowing that the budget deficit was going to be even worse this year, the administration floated a much higher projection a few months ago. The plan was that the real deficit would be high, but lower than the number they pulled out of thin air, so their failure to manage the economy wouldn't look all that bad.
Here's the story from the Wall Street Journal:
The Bush administration this week is expected to project that the federal budget deficit will reach $420 billion or more this year.
The administration predicted in February that the deficit would reach $521 billion — an estimate that some observers on Capitol Hill and on Wall Street regarded as an exaggeration designed to ensure President Bush could at least beat expectations when the midyear update came out.
Aides said that while they haven't received official numbers, they expect the latest deficit projection to be between $420 billion and $450 billion for the year ending Sept. 30. [Wall Street Journal 07/28/2004 subscription]
Setting budget deficit records year after year is not a good thing.
Even the Chairman of Bush's Council of Economic Advisers, N. Gregory Mankiw, doesn't like it.
In his popular textbook Principles of Economics, Mankiw tells us that running a deficit "pulls resources away from investment in new capital and, thereby, depresses the living standards of future generations."
I could be wrong, but I doubt he'll have the intellectual honesty to repeat that when the budget figures are released.
We really, really need to get some competence and integrity into the White House.
Article comments
1 - David Flanagan
Setting budget deficit records year after year is not a good thing.
I agree with you Hal. As a conservative, I'm a believer in limited government. The number one concern I have with our entire federal government right now, the Bush Administration included, is the rising deficit.
Personally, I don't think President Bush can lose on the federal deficit, but Republican members of congress definitely can. If there is any one issue that will hurt Republicans over the next four years, it's the deficit.
It's time to verbally pummel our elected officials, all of them, over this issue.
Thanks,
David
2 - Craig Lyndall
From BBC on the devaluing of American currency
"The value of the dollar plays an absolutely central role in the global economy.
Oddly perhaps, the US suffers least of all. Although its rampant consumers will find it harder to slake their thirst for imports, its companies will become far more competitive, reaping profits and boosting jobs.
Meanwhile exporters in Europe and Asia have found it harder to sell their products into the US market.
American tourists, the free-spending mainstay of many a European or Asian resort, will venture out in far smaller numbers this year.
International companies will suffer uncertainty and complicated book-keeping.
And because commodities such as metals and crops are traded in dollars, their prices may have to rise; gold and oil have both boomed as the dollar fell."
Hmm, so some short term pain for more competitive companies, less imports and more jobs.
There are always two sides.
3 - Hal Pawluk
As a rationalist denizen of this country :-), the growth in the size of the federal government bothers me, too.
While non-government jobs were being sent off-shore during this administration, the feds were hiring more and more people. In addition, they were increasing the amount of money spent on outside "contractors."
I'm getting the numbers together, but (roughly), we now have about 3 million employees in the federal goverment and another 6 million working for it but not part of the civil service.
This has been going on since 1994 when the Newt-Gingrichites got control of the legislature, so it's not all Bush :-) and legislators of all political stripes are party to it.
This adminstration, however, seems particularly incompetent, and they have managed to not only increase the federal deficit, but have caused deficits in many of the states.
I wouldn't hire any of them to run my company.
4 - David Flanagan
This adminstration, however, seems particularly incompetent, and they have managed to not only increase the federal deficit, but have caused deficits in many of the states.
The government was formed in such a way that it will never be efficient at things other than the very basic tasks it was created to do, such as provide for the common defense. A too efficient government is not something I want to contemplate.
With that in mind, you are giving the Bush Administration WAY too much credit. No administration is all-powerful, and the federal government as a WHOLE has been on a spending binge since 1998; not since Bush took office.
As for bankrupting state governments, that is just silly. I know for a fact that the state of Maryland was spending money hand over fist during the boom years in the late 90s, just like the federal government, even while many here were asking for better fiscal discipline. States got themselves in trouble, and blaming Bush is just political rhetoric.
With that said, the states have done a much better job of getting themselves out of debt. Texas solved its problems by moving to a zero-based budgeting strategy, Maryland is still hammering out its path to a balanced-budget but is making progress, and even California is finally making some progress.
I guess Governor Arnold is finally whipping those girly-men (and women) into shape. ;-)
David
5 - Mike Kole
Hal-
The irony is that Mankiw is probably one of the more liberal economists going today. When taking my MBA courses in Cleveland, I studied under a Cleveland Federal Reserve vice president who knows Mankiw personally. (He liked to tell the story that he's seen him in his Speedos.) With all that in mind, I was surprised that the Bush Administration hired him.
In actuality, I would not be surprised at all if Mankiw failed to spin Bush. Economists have a habit of saying what they believe, no matter what their employers think of it. Hoover's famed frustrated quote about one-armed economists comes to mind.
What is hard for me to miss about budgets is that almost every American government's budget is in a deficit right now, and it doesn't matter at what level (Fed, state, or local) and it doesn't matter what party the leader is from. They all suffer from the same problems: when revenues sank, high spending commitments remained.
Bush is indeed among the worst budget managers because, in the face of the circumstances mentioned above, he did two things to create more stress on the budget- modestly cut taxes and significantly increase spending.
Most governors, on the other hand (to borrow from the Hoover quote), held the line on taxes or raised them, while only modestly increasing spending causing only modestly increased stress on their budgets. Plans like David mentioned are in place in various states. The Federal budget remains unaddressed.
As a Libertarian Party official in Indiana, I know that our membership has swelled with frustrated fiscal conservatives who feel like they have been abandoned by Bush and by GOP legislators. While being 2% to the right of Democrats is still towards the fiscally conservative side, it's still several miles away from the principle of limited government.
6 - Dirtgrain
David Flanagan said: "No administration is all-powerful, and the federal government as a WHOLE has been on a spending binge since 1998; not since Bush took office. . . . States got themselves in trouble, and blaming Bush is just political rhetoric.
Actually, Enron got California in trouble, and I will blame Bush. And Enron is still trying to take the people-of-California's money. "Spending binge since 1998?" Maybe, but imbalanced budgets, increasing national debt and deficits started with Bush (as he tried to become Reagan).
Republicans aren't against taxes. They are against taxing rich people. They love to funnel tax money into thier own pockets, though. Where do you think all of this out-of-control spending goes? You think it goes to lazy, inefficient bureaucrats? No. It goes right into the hands of rich people, CEOs and corporations (General Dynamics, for example, Haliburton, pharmaceutical companies).
David Flanagan said: "I guess Governor Arnold is finally whipping those girly-men (and women) into shape."
Gray Davis made a hell of a lot more progress than Arnold has, number-wise, on California's budget problems.
As Mike said, "almost every American government's budget is in a deficit right now, and it doesn't matter at what level (Fed, state, or local). . ." Bush did shortchange states on predicted funding. The deficits have trickled down all the way to local governments. Every community in my area (Southeast Michigan) is making cuts--even to their police departments and fire departments. All this while Bush is spending more than ever? This is part of the war on terror? We won't be so quick to respond locally to terrorist threats (less police), and if they do strike, we won't be so ready to deal with the damage (less fire fighters).
7 - Hal Pawluk
Craig, your source got it wrong and Mankiw got it right - it's long-term pain.
8 - Hal Pawluk
David, it's "silly" to keep setting up your own straw men then arguing against them. Who on earth said anything about "bankrupting state governments"?
And the issue isn't just spending, it's deficit spending. One side of that is increased spending, the other side is reducing income through tax cuts in hte face of common sense, much less good economics. Economists like Mankiw and Greenspan agree.
9 - Shark
Deficits?
Who cares. I got a 15% pay raise in 2003; I have enough diverse investments and savings to last my lifetime and cover two or three generations of my progeny. I got a huge tax break when Bush took office, and I'm getting rewarded with bonuses and stock options for cutting American workers at my company.
Deficits? Grandchildren?
The Future?
Fuck you. I got mine.
10 - Hal Pawluk
David, Arnold is a girlie-man as far as the budget goes, and I said (over and over and over last year) that McClintock was the right guy to fix the budget.
What Arnold has done for California so far is to delay the day of reckoning: last year, he borrowed $15 billion, and this year borrowed more.
As an example of his budgetary skills, a couple of weeks ago he got the prison guards to forgo a 10.9% raise that was due during this budget year. He got them to agree to 5% now, 5% in January and 5% next July. If you do the math, you see that to get the numbers to work out this year, he has give away "three nickels for a dime."
How manly is that, David?
11 - Shark
Hasta la vista, balanced budget?
12 - Hal Pawluk
By the way, did you notice that the Republicans are using the same spin technique on the Democratic Convention?
They float an unrealistically high number knowing that there's no way it's going to be right, then take advantage of the lower real number when it arrives.
Here, it was the size of the deficit; on the the convention, it's the amount of the bounce in the polls.
And nobody ever seems to catch on.
13 - Shark
What?
The Law of Diminishing Over-Expectations...
like...
WE INVADED TO FIND WMD!
(no WMDs found)
no, wait....To Defeat an evil dictator!
(can't catch him)
no, wait... To Kill the terrorists!
(whoops, we just created thousands more)
no, wait....To Liberate a people!
(they hate us)
no, wait...To help free Iraqis!
(folks can't leave their homes)
no wait... To Establish Security in the Middle east
(they're blowing us up left and right)
no wait... To promote Democracy!
(they vote for a theocracy)
no wait...We're just wanted to look around...
(Uncles Sam strolls leisurely, looking under rocks while casually whistling to self)
...Got any... um.. oil around here?
FADE TO BLACK (Future)
14 - David Flanagan
Maybe, but imbalanced budgets, increasing national debt and deficits started with Bush (as he tried to become Reagan).
Actually, deficit spending started during the Clinton era, and both Republicans and Democrats, as well as state governments are to blame. The economy peaked in March of 2000, Clinton's final year in office, and the economy shrank by 0.5% in Q3 of that year. There was a slight uptick in Q4 of 2000, but then we slipped into an official recession (a recession is at least two consecutive quarters of declining GDP) in 2001. Please note, this happened BEFORE tax cuts had been passed, much less taken effect, BUT, there was no decline in spending on the state or federal level to match the decline in tax revenues! This is what produced the lion's share of the current deficit, not tax cuts.
Furthermore, a lot of the perceived wealth of the late 90s turned out to be nothing more than unreal expectations. When the .com bubble burst, and hundreds of companies with no plan to ever make money failed, all of that perceived wealth went away, and the incredibly high tax revenues which were coming in from capital gains taxes from .com duds disappeared almost overnight.
Bush did not create the .com bubble and neither did he burst it. Then, of course, the corporate scandals, which began during the 1990s, burst into view in mid or late 2001, and that further shook the confidence of investors and stalled the recovery. Then, of course, the US was attacked on 9/11 and 1 to 1.5 million jobs disappeared because of the devastation it caused to the travel industry.
Despite all of that, the recession was very mild by historical standards and the economy is now seeing it's strongest level of growth in nearly 20 years. Employment statistics are almost as good as they were during the boom years of the 90s and every indication is that the economy is beginning another long (and hopefully more healthy) phase of growth.
With that said, it's time to get the deficit under control. If Republicans can't lead the way on this, then voters will ask the Democrats to do it.
Nuff said.
Thanks.
David
15 - Hal Pawluk
Bush is still incompetent in budget matters, and was determined to give a tax cut to the rich come hell or high water.
While running for office, with projections of huge surpluses, the tax cut was to return the money to taxpayers. When the recession became evident, the tax cut was to jump-start the economy (which it couldn't possibly do because of the way it was distributed).
Bush doesn't just flip, he's a total flop.
16 - David Flanagan
When the recession became evident, the tax cut was to jump-start the economy (which it couldn't possibly do because of the way it was distributed).
Well, I know that opinions have varied on the benefits of the tax cuts, but Bush will get credit for what the tax cuts have done for the economy. As a taxpayer, I welcomed the money back and actually began to send a larger amount of money to my 401K rather than spend the extra money.
Everyone who pays taxes got a tax cut. And it wasn't the government giving anything back to anyone, it was the government allowing us to keep more of what we earn. That makes government less of a burden to the individual, and when times get tougher economically, that is a good thing. Thats why the term "tax relief" fits so well.
As you probably know, the top 50% of wage earners pays over 96% of all the taxes in the country. The top 10% pays 30% of all the taxes. In that sense, then, because the tax system is weighted AGAINST top income earners, tax relief often SEEMS to give them the greatest benefit.
If you want to talk about a completely fair tax system, then you have to start talking about a flat tax. But a lot of people don't want to go there because it means that the huge number of people in this country who currently pay few if any taxes will have to pay more, or begin paying altogether.
Right now we have in this country a very large number of voters who pay few or no taxes, but still get to vote and, thus, influence tax policy during elections. They have incentive to maintain the status quo at the very least, but, really, they would love to see higher taxes on higher wage earners, $55,000/year and above, because it means more services for them with no sacrifice at all on their part.
So, we have people who pay very few or no taxes talking about a 70% tax rate on people earning $250,000.00 or more. The assumption seems to be that people who work VERY hard and sacrifice to be successful don't have a right to enjoy the fruit of their labor.
Instead, the government leeches off of the most successful in society to fund all the programs that non-taxpayers want. But what happens if we have an economic collapse among top wage earners? The Great Depression, Part II, is what happens.
Thanks,
David
17 - JR
David Flanagan: As a taxpayer, I welcomed the money back and actually began to send a larger amount of money to my 401K rather than spend the extra money.
So by not spending the money, it was as if your portion of the tax cut did nothing for the economy. How ironic. (Please don't take that as a criticism of your investment choice, however.)
As you probably know, the top 50% of wage earners pays over 96% of all the taxes in the country. The top 10% pays 30% of all the taxes.
But how much of the income do they make? If the top 10% control 30% of the wealth in this country, mabye they ought to be paying 30% of the costs of running the government which secures their prosperity.
If you want to talk about a completely fair tax system, then you have to start talking about a flat tax. But a lot of people don't want to go there because it means that the huge number of people in this country who currently pay few if any taxes will have to pay more, or begin paying altogether.
Problem there. If someone's income is at or near subsistance level and you start taxing them, they're going to drop below subsistance level. Soon they will stop paying taxes again.
Right now we have in this country a very large number of voters who pay few or no taxes, but still get to vote and, thus, influence tax policy during elections.
Yeah, but they still have to obey all the laws, so they should probably get to have some say in who makes the laws.
They have incentive to maintain the status quo at the very least, but, really, they would love to see higher taxes on higher wage earners, $55,000/year and above, because it means more services for them with no sacrifice at all on their part.
The high wage earners get plenty for their tax dollars; some argue they benefit even more from government services than the people on welfare. I know the cops show up a lot quicker when you dial 911 from a high-rent district.
So, we have people who pay very few or no taxes talking about a 70% tax rate on people earning $250,000.00 or more.
Oh, how unfair! Still, you don't see people giving up those high-paying jobs.
Hey, come to think of it, those people paying 70% on $250,000 are still taking home more than I gross. So I guess I can't feel too sorry for them.
The assumption seems to be that people who work VERY hard and sacrifice to be successful don't have a right to enjoy the fruit of their labor.
The implication there seems to be that people who make more money work harder. I don't know, does the owner of a baseball team work 40 times as hard as a garbageman?
Instead, the government leeches off of the most successful in society to fund all the programs that non-taxpayers want. But what happens if we have an economic collapse among top wage earners? The Great Depression, Part II, is what happens.
I believe most countries in Europe have more graduated tax rates than we do; indeed, even we have had steeper tax curves in the recent past (since WWII). However, there has been nothing like another Great Depression.
Therefore, your analysis appears to be incorrect or incomplete.
18 - Dirtgrain
David Flanagan says: "Actually, deficit spending started during the Clinton era. . ."
Your "actually's" don't have much weight: see the U.S. Federal Budget Deficit by Year chart.
From President Clinton announces another record budget surplus:
President Clinton announced Wednesday that the federal budget surplus for fiscal year 2000 amounted to at least $230 billion, making it the largest in U.S. history and topping last year's record surplus of $122.7 billion.
Compare that with what Bush said he was going to do. From "Bush unveils 'fiscally responsible' budget":"We thought long and hard about the right number," [Bush] said of the $1.6 trillion tax cut proposal. "We think it's just right."
What the hell happened? David Flanagan says:"I have a reasonable and balanced budget," Bush said. "It funds priorities, and my administration has no higher priority than education." He said the budget would "honor the commitments to America's senior citizens," including support for Medicare and Social Security.
"Our budget is fiscally responsible. If enacted, it will reduced the deficit by an unprecedented amount over the next four years."
Bush did not create the .com bubble and neither did he burst it. Then, of course, the corporate scandals, which began during the 1990s, burst into view in mid or late 2001, and that further shook the confidence of investors and stalled the recovery. Then, of course, the US was attacked on 9/11 and 1 to 1.5 million jobs disappeared because of the devastation it caused to the travel industry.
And tax cuts! And corporate welfare. And tax shelters.David Flanagan says: ". . . but then we slipped into an official recession (a recession is at least two consecutive quarters of declining GDP) in 2001. Please note, this happened BEFORE tax cuts had been passed, much less taken effect, BUT, there was no decline in spending on the state or federal level to match the decline in tax revenues! This is what produced the lion's share of the current deficit, not tax cuts."
Reading from the beginning of your first paragraph to its end, I get the impression that you are blaming the current deficit (of this year) on Clinton. Well maybe that wasn't your intention, but your next most obvious intention is to say that tax cuts have nothing to do with our current deficit (of this year). Instead, spending just didn't decrease. That is like saying, "Your lake didn't get smaller--the land around it just got bigger." Creating a budget--a balanced one--involves accounting for both revenue and spending.
Overall, are you trying to say that the deficits (and the budget) are beyond the president's control (and the control of congress, let's not forget)?
David Flanagan says: ". . . BEFORE tax cuts. . ." and ". . . match the decline in tax revenues!" Which is it, BEFORE or AFTER?
David Flanagan says: "As you probably know, the top 50% of wage earners pays over 96% of all the taxes in the country. The top 10% pays 30% of all the taxes."
From Inequality.org:
CEO pay/worker pay ratio reached 301-to-1 in 2003, when the average worker took home $517 a week; the average CEO $155,769 a week, according to Business Week's 54th Annual Executive Compensation Survey
From the Inequality.org facts page:"By 2000, the top one percent of the population was getting a bigger share of after-tax income than the bottom 40 percent. In other words, 2.8 million Americans were out-earning 110 million."
Do go and see the Inequality.org facts page. Check out how things have changed over the years.From the Corporate Welfare Information Center:
"The $150 billion for corporate subsidies and tax benefits eclipses the annual budget deficit of $130 billion. It's more than the $145 billion paid out annually for the core programs of the social welfare state: Aid to Families with Dependent Children (AFDC), student aid, housing, food and nutrition, and all direct public assistance (excluding Social Security and medical care)."
David Flanagan says: ". . . people who work VERY hard. . .""After World War II, the nation's tax bill was roughly split between corporations and individuals. But after years of changes in the federal tax code and international economy, the corporate share of taxes has declined to a fourth the amount individuals pay, according to the US Office of Management and Budget."
So Ross Perot works 3,000,000,000 times harder than the average working man? When money reaches these abstract sums, it isn't for luxury and enjoyment. It is power over people. It represents us, and hell yes we can tax it.
"Instead, the government leeches off of the most successful in society. . ." Actually, the most successful in society leech off of us. Check out the minimum wage, man.
I'm don't care to defend Democrats--they have helped create the corporate monster and the ridiculous inequality that we have in this country. It just pisses me off to read someone who claims that the deficit isn't Bush's fault--as if he had no control over it. Well, I'm pretty sure that that moron isn't calling the shots, but his administration is. Republicans are (see The Politics Of Rich And Poor: Wealth And The American Electorate In The Reagan Aftermath). And please quit throwing around the word spending. What do you want to stop spending money on? Local police and fire departments? Education? Head Start? Be specific.
19 - Mike Kole
Right. All spending is untouchable, except the fire department, police, 911, and other safety. Those are always the first to be offered for cutting, even though these are the only real essential services. Excellent spite response.
Here's a thought: cut everything that is not safety related first instead and see what you come up with. Start with pork-barrell projects like multi-million dollar studies on arcane minutiae, roads to nowhere, and corporate welfare.
What's fun to watch is that Democrats will yell how Bush created a deficit, while Republicans will yell how their Democratic governor created a deficit.
Well? Everybody's right. The Republicans and Democrats created thes deficit debacles. The President is guilty, but so is the Congress that voted to approve the spending. The governors are guilty, but so are their state legislatures for approving the spending. Name for me the government that has cut spending, and I'll declare you the winner.
How smart is it that the Republicans and Democrats are still expected to be the answer? Look to Einstein's definition of insanity for a clue, then vote Libertarian.