Posted on 01/13/2005 12:37:18 PM PST by Maigret
Psst, the Deficit’s Shrinking
Why won’t anyone say it?
Here’s one story you won’t find on tomorrow’s front pages: “The U.S. Budget Deficit Is Shrinking Rapidly.” The headline would be accurate, but the mainstream media is much more interested in talking down this booming economy than telling it like it is.
This week’s Treasury report on the nation’s finances for December shows a year-to-date fiscal 2005 deficit that is already $11 billion less than last year’s. In the first three months of the fiscal year that began last October, cash outlays by the federal government increased by 6.1 percent while tax collections grew by 10.5 percent. When more money comes in than goes out, the deficit shrinks.
At this pace, the 2005 deficit is on track to drop to $355 billion from $413 billion in fiscal year 2004. As a fraction of projected gross domestic product, the new-year deficit will descend to 2.9 percent compared with last year’s deficit share of 3.6 percent.
Wire reports are loaded these days with accounts of an expanded trade gap (driven mostly by slower exports to stagnant European and Japanese economies, along with higher oil imports from the peak in energy prices). But there’s not a single report I can find that mentions the sizable narrowing in U.S. fiscal accounts. Behind this really big budget story is the even-bigger story: The explosion in tax revenues has been prompted by the tax-cut-led economic growth of the past eighteen months.
With 50 percent cash-bonus expensing for the purchase of plant and equipment, productivity-driven corporate profits ranging around 20 percent have generated a 45 percent rise in business taxes. At lower income-tax rates, employment gains of roughly 2.5 million are throwing off more than 6 percent in payroll-tax receipts. Personal tax revenues are rising at a near 9 percent pace.
Meanwhile, in the wake of strong stock market advances over the last two years, non-withheld revenues from individuals — including investor dividends and capital gains that are now taxed at only 15 percent — have jumped by over 14 percent.
Following the Clinton cap-gains tax cut and savings expansion bill of 1997, investment-related tax collections led to bull-market budget surpluses in the pre-9/11 period of 1997-2001. However, despite the flood of new revenues, this year’s federal budget is still overspending. Domestic spending on non-entitlement programs (excluding homeland defense) is rising at a 4.1 percent rate. That’s more than twice the pace of core inflation. But this may be changing.
According to the Washington Post, the Bush budget totals planned for fiscal year 2006 may be essentially unchanged from the totals for fiscal year 2005 (excluding defense and homeland security). According to reporter Jonathan Weisman, the administration’s first really tough budget request (due out next month) “would freeze most spending on agriculture, veterans and science, slash or eliminate dozens of federal programs, and force more costs, from Medicaid to housing, onto state and local governments.”
The rapid growth of federal health care and other entitlements would also be slowed markedly. Though the numbers are not yet available, this sounds a bit like Ronald Reagan’s tax-cutting budget of 1981. In addition to reducing the top personal tax rate to 50 percent from 70 percent, the Gipper proposed budget cuts that would be worth nearly $100 billion in today’s dollars.
Of course, the political screaming over the forthcoming budget has already begun. A passel of Democrats and at least one Republican, Sen. Craig Thomas of Wyoming, have written a protest letter to Josh Bolten, director of the Office of Management and Budget. Former-Gov. John Engler of Michigan, a Republican and the current president of the National Association of Manufacturers, has pledged to fight the elimination of various protectionist subsidies to his member firms.
However, Sen. Judd Gregg, the New Hampshire Republican who is the current chair of the upper chamber’s budget committee and a long-time Bush ally, is set to support the administration’s new budget discipline. This includes, by the way, Bush’s plan to reduce Social Security benefits by replacing wage indexing with a price-level formula and extending the retirement age — one or the other, or both — in return for personal saving accounts.
By the way, Treasury Secretary John Snow just completed a Wall Street tour where leading bond traders told him not to sweat the transitional costs for personal accounts. The traders said that an additional $100 billion a year over the next decade for transitional financing will be easily manageable. “A rounding error,” one senior trader told Snow.
A supply-side tax-reform movement, a shrinking budget deficit, newfound spending discipline, and a determination to confound conventional wisdom by reforming Social Security has George W. Bush’s second term off to a roaring start — even before he is officially sworn in.
It's the spending that matters most in the long run. Why should spending be up 6.1% with a Republican president and congress? They have totally sold us out on the "less government" concept.
What? The sky's not falling?
Should be dropping faster, and it will be. The Administration is aiming for a "no-growth" budget this year. If it passes, we could be looking at a balanced budget before 2008.
"In the first three months of the fiscal year that began last October, cash outlays by the federal government increased by 6.1 percent while tax collections grew by 10.5 percent. When more money comes in than goes out, the deficit shrinks."
What is he talking about? There is not more money coming in than going out, if there were then there would be a surplus, not a shrinking deficit. The mere fact that tax collections are GROWING faster than the outlays are GROWING does not mean more money is coming in than going out. This guy is supposed to be an economist?
Depends on how it was spent. Did it go to defense, or to continued study of the sex habits of the South American swamp rat?
I don't know how Kudlow can write and wave pom-poms at the same time. Takes talent.
Doesn't matter. Money is fungible. If the increase was in defense then they should have cut from somewhere else.
Compare this to the Carter deficit which at $50 Billion was 8.8% of GDP. Now THAT'S an economy killer. Anyone who says this current one is the largest deficit ever is economically illiterate.
I bet it may not even be in some newspapers.
Good luck with that! The congress would rather cut their arms off.
Which would be in keeping with the ethos of this president...kinda like a Boy Scout (and I believe he was a cub)....leave things in better shape than you found them.
Isn't that nice??
This year the thieves in DC will only steal about 311 billion from our grandchildren and great grandchildren, many of whom are unborn.
Whats to cheer?
I have always maintained that the so-called "Clinton balanced budget" was the result of the booming stock market, which increased capital gains and dividend incomes to such stratospheric levels that the budget was balanced.
When the bubble burst in 2000, six months before Bush was elected, those tax revenues collapsed.
The Democrats as so full of it when they claim that "Clinton balanced the budget" when in fact Clinton did absolutely nothing but sit on his fat butt with Monica as the economy did its bubble thing.
Add this story to the other post about a business boom in post-saddam Iraq and W will be looking my-t-fine in 4 years
Especially if we go after Syria and Iran falls on its own
I could have sworn Willie posted this article.
There was a billion dollar surplus in December.
Uh yeah, as long as the Medicare expansion passed last year is repealed.
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