An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.From corporations and the wealthy? Okay, frame that.
On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year's levels and that the deficit will be about $100 billion less than what they projected six months ago....
Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.
The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big rise in individual taxes on stock market profits and executive bonuses.
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"The long-term prognosis is still very, very bleak, and the administration doesn't have any kind of long-term plan."
That's the Democratic response to this news:
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Another response: I like your new, happy pic.
gotcha
But the "long-term prognosis" IS very bleak--the gov't has NO plans to write me a million-dollar check, and should be voted out or worse, preferably.
Mary, are you really expecting good economic news in the months heading up to the election? It would be a break from the way the economy has been presented so far with Bush in the White House. BTW, you presented the Dem response right there. After years of blaming the deficit on tax cuts we now have figures that suggest the opposite. So what's the plan? Talk about the high price of gas. If you can't argue the point, change the subject.
Mary, your country is nothing so much as an experiment in trying to offer every citizen as much upward-mobility and economic opportunity as the laws of nature, the contraints of economic principles, and the vagaries of human nature will allow. Is everything perfect? Only in Utopia.
So the deficit will be only $300 billion this year? Ah....hmm...... let me see now, if I add that $300,000,000,000 to $8,421,820,023,224.26 that makes a mere $8,721,820,023,224.26. At start of Bush presidency the debt was $3.31 trillion. What is that almost a trillion a year?
The total debt across the board is $44, 000,000,000,000 and 26 cents.
Scroll down to see a nice little chart the shows Projected government debt will grow more than GDP.
To our detriment we no longer understand thrift, economy, saving or balanced budget.
bearbee, I agree with your sentiments, but your numbers are only the one side of the ledger.
The other side is an economy over 13 trillion and growing, a budget deficit right at the modern norm 2+%.
Not to say that we're not going to get killed pretty soon by the demographics vs entitlements, tho, unless we git us some o that ree-form.
Mary was complaining about gas being $3.00 a gallon. Frankly I'm not happy about it either. But adjusted for inflation, it's cheap. Much cheaper than during the last fuel crisis. Gas is much cheaper in the U.S. than in most of the industrialized world.
The problem is, we are spoiled by just how well our economy is doing.
And 99% of Americans live better than 99% of all people who have ever lived.
I can't wait to see how Krugman and the Democrats explain to us that the economy is in shambles.
So true--high fuel costs act as a painful regressive tax.
Hard to see any political solution, tho, to an aggravating supply/demand picture.
The equation is balanced on a knife-edge as is, with demand only to grow, and supply perhaps maxed @ today's 85 mm bpd.
The thing that really upsets me and has upset me since Bush took over, is the complete inarticulation of good performance. This data isn't a secret that only Kudlow discovered, everybody in the White Houe had to know it and every single person said nothing. This president simply has no clue....
..13 trillion and growing
I believe you make a mistake if you are content to think we will grow our way out of debt.
Finance is playing a greater role in corporate profits, We have an eroding manufacturing base, our service jobs are being outsourced. Job growth such as it is primarily in the financial sector. At one point we were an oil exporter. We now are importing over 60% of our energy requirements and many oil producing nations are hostile to us. We have become a consumer nation. Our trade imbalance keeps growing at an alarming pace. China and Asia are becoming the manufacturing engines selling their goods to us. We used to be a creditor nation. Now China and Japan are carrying our debts and we have become the worlds greatest debtor nation of all time.
When the economy slows the Fed will increase liquidity creating more debt.
The nations fiscal and economic health is at risk.
bearbee's name is well chosen. He represents the glass half empty school of thought.
What this school of thought ignores is that without the tax cuts, this economy would not be as good as it is today. In other words, if we had taken the medicine the democrats offered us, we would still be struggling with even worse deficits.
But, of course, the "rich" wouldn't be getting off cheap.
Bearbee, what is important is not so much the debt as a number but the return on that debt. Our Treasury auctions are open, no foreign central banks are under pressure to bid in them. But bid they do, competitively, because USA is a safe haven and a good investment, and the debt they buy is both the much demagogued "foreign debt" and--at the same time--"foreign investment in the US economy".
Granted, Treasury has to pay a return on that money, so the system is only good for us to a certain level, set by mkts @ the return we ourselves make on that money. Currently, that return expressed as corporate profits as a percent of GDP, is at an all-time-high (and is the source of your 'finance' complaint--which is a non-sequiter to me, as it finances the manufacturing you appreciate).
But current account deficits do matter, and we're probably right at the upper level now, which is why the USDollar is currently weakening against the other mature currencies.
But these are things which take place at the margins of a very robust, full-employment, growing economy, with productivity gains crucially outstripping inflation--tho the gap is narrowing, (gulp).
But the central bankers will make the adjustments, the stock market will react, then a new cycle will commence. In fact this is happening, has been since the May 10 Fed meeting.
We're not in catastrophe mode, nor on the path to it--assuming we will--before it's too late--fix our entitlements and pork barreling.
If we were in deep doo-doo, our long Treasury bonds--long-term Dollar obligations--would be in less demand, driving their yields--"interest rates"--higher.
Granted the Fed controls the short-rates but the long rates are all market-derived, and are in a very healthy and confident mid-5% range.
This "long-bond rate" is world-central-bank truth, un-infected by the political rhetoric which keeps us so confused about the future.
Before cannonizing Laffer, it's worth pointing out that much of the spike in revenue is probably directly related to the temporary tax holiday on dividend repatriation from overseas as provided in the American Jobs Creation Act.
In other words, there's good reason to believe this isn't a structural shift but a one-time injection of revenue.
Ah, Laffer, if we can't canonize him now, then when?
:)
When looking at debt, it's always important to look at the purpose for which the debt is being incurred, not just the absolute number. For example, General Electric's long-term debt is considerably higher than it was a decade ago...but few investors are worried about it, because they are confident that the money was invested in income-producing assets.
Similarly, many past government spending programs have arguably generated high returns on investment--the TVA, the Interstate Highway System, winning WWII and the Cold War, and the GI Bill being a few I would nominate for consideration--and to the extent these were funded by debt, they also generated direct or indirect income streams for its repayment.
To what extent will current spending programs actually contribute to future economic growth? That seems like a better thing to debate than the pure level of the deficit and the debt.
jpe: Where is the evidence to back up your assertion? I have seen no evidence that any sizable porportion of our economy's growth is due to dividend reparation.
I think the moore likely explanation is the one cited in the article Ann linked:
One reason for the increased volatility may be that, contrary to a popular assumption, a disproportionate share of income taxes is paid by wealthy households, and their incomes are based much more on the swings of the stock market than on wages and salaries.
Let's see. Before Bush entered office we had a $100 billion surplus. And this year, assuming things go as well as they predict, we will have a $300 billion deficit.
Spin that.
The fact is that that tax cuts ARE fine. They don't cut revenues as much as people think, because they do help the economy. But they don't pay for themselves. After all, income tax receipts this year are still expected to be lower than they were from before the tax cuts, and we've had ample inflation and population growth since then.
But the big increase in the deficit is due to exploding spending. And Republicans are solely responsible for that, after all, they have controlled all three branches of government.
If spending had just been held in line, the deficit would be almost gone.
Alas it's not. And now we have people saying that going from a $100 billion surplus to a $300 billion deficit is somehow supposed to be "cutting the deficit in half".
Anyone who believes that is a moron. Yes - a moron.
Let's see. Before Bush entered office we had a $100 billion surplus. And this year, assuming things go as well as they predict, we will have a $300 billion deficit.
Spin that.
How about 9/11 and the war on terror? Then toss in Hurricaine Katrina. Throw in increasing entitlement costs, and a brand new entitlement program like the prescription plan, and I think it is easily explained.
You know, there probably wouldn't be a deficit at all if the US government wasn't paying zillions of dollars every year for the war. Not the war in Iraq mind you, but the other war: the War on Poverty. Where is the exit strategy for that? After all the trillions of dollars that have been spent on that war, has that situation gotten any better? Maybe if they just simply capitulate on that war (as the Dems seem so fond of doing on shooting wars), the US government will acutally run a surplus.
Gahrie - Actually, it would be nice if it were just 9/11, but unfortunately it's not.
Yes - it IS things like the prescription drug program and other entitlement growth, plus pork barrel spending.
You can't just blame this on 9/11. The numbers don't add up.
Republicans used to believe in holding down spending. No more.
I think I overstated the revenue attributable to the AJCA. According to this article, which is pretty representative of the estimates I've seen, around 200-600 billion shoulda been brought back in '05, so around 10-30 billion goes to the feds as a result. A lot, but way less than I expected.
That's not true Ed.
You should do some research on where government money is spent.
Yes - I agree that we should abolish all spending on the war on poverty. I don't care about poor people personally. Let them starve to death - then we don't have to worry about them (not being sarcastic there).
But it won't solve our entitlement problem.
We need to end entitlements. Social Security and medicare are theft. Let people fend for themselves. The strongest will survive. Who needs the weak.
Downtownlad, I agree about social security and medicare. Here's a spreadsheet of government expenditures; payments to individuals far outstrips all other expenditures.
hmmm...getting pretty 19th century around here....
hmmm...getting pretty 19th century around here....
I agree, and everyone is ignoring the fact that all of those trillions of dollars spent on the war on poverty has completely eliminated...ahhhh...drastically reduced....aahhhh...cut in half....aaahh...who am I fooling, it's actually increased the percentage of population categorized as poor.
At least it is true that the average poor person today has a better quality of life than 99% of the people who lived in the 19th century.
I just don't think I should have to pay for it.
I thought a few years ago that Tommy Thompson's Wisconsin Plan had educated the country on the toxic effects--to the beneficiary--of prolonged programmatic gov't help. But, alas, no, the 'soft bigotry of low expectations' is with us as strongly as ever.
DTL,
"Let's see. Before Bush entered office we had a $100 billion surplus. And this year, assuming things go as well as they predict, we will have a $300 billion deficit."
My spin: There was a little thing called the tech stock market bubble that popped in 2000 or so. NASDAQ dropped from 5000 to around 1700, erasing billions of dollars in wealth and tax revenues. Hence we went from surplus to deficit. Not really much to do with GWB.
SC, i think i love you.
Panther,
You're wrong about the stock market causing the deficit.
If you just look at SPENDING in the year 2006 and compare it with SPENDING in the year 2000, the difference more than explains the deficit.
"....After all, income tax receipts this year are still expected to be lower than they were from before the tax cuts, and we've had ample inflation and population growth since then...."
This is a curious comment - One that was also alleged by the NY Times article. However, any dummy can look at the Federal Reserve website and find that fed receipts in 2000 were $2.07 trillion, while today they are $2.4 trillion? How is that lower?
It is true that Republicans have let spending drift up to 20.4% GDP from lows of 19% in 2000. However, this is still better than the 21.75% GDP spending was at in January 1995 when the Republicans took power of Congress.
Right now the Iraq war is costing about .6% GDP, which is far less than the 1.4% rise in spending from 1998. Republicans need to spend less.
The Clinton surplus--which we will hear much about in the coming months--was made up of the Cold-War "peace dividend", the dot-com bubble, the '94 congress's spending restraint, and Clinton in the form of his wall-street Treasury Secretary, "Bond Market Rubin".
But 'the surplus' was on death-watch as of the recession that began in the fall of 2000 as a result of the dot-com bust, and the two trillion loss on 911 and the war that resulted, finished it off.
Stimulation in the form of easy money (a low Fed Funds rate) was instituted to jump-start the post 911 economy, and this flood of liquidity is exactly what has raised all the numbers so high in such a short time.
Now we are fighting that liquidity, because too much money chasing too few goods is monetary inflation--which is the problem now on the front burner (Gold prices are the best indicator of the excess liquidity).
But as SC points out, the president is only one player in this vast pendulum swinging to and fro, and as Larry Kudlow says, "Did you know that just over the past 11 quarters, dating back to the June 2003 Bush tax cuts, America has increased the size of its entire economy by 20 percent? In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy, and much larger than the total economic size of nations like India, Mexico, Ireland, and Belgium."
I mean, if the US economy was not resilient, flexible, and robust, but instead the house of cards that the political attack says it is--would it have weathered the supply/demand shock of global-boom growth in commodity prices (esp oil & gas), the several hurricanes including the monster losses of Katrina, and the GWoT? We're overdue for a slow-down--the 'soft-landing--and a consolidation, but this time it will be with corporate balance sheets in great condition, primed and ready for the next upswing in demand.
vnjagvet said... bearbee's name is well chosen. He represents the glass half empty school of thought.
What this school of thought ignores is that without the tax cuts, this economy would not be as good as it is today. In other words, if we had taken the medicine the democrats offered us, we would still be struggling with even worse deficits.
I do not like higher taxes but more critically, I dislike excessive spending. It is a pity you cannot distinguish between the two.
Clinton raised taxes and the revenues exploded with quarter after quarter of unexpected surpluses. The stock market went on a rampage generating even more revenue. Do I attribute this to Clinton and tax hikes?.....no. Everything moves in cycles. Clinton walked into a recovering economy, more deregulated industries as well new tech industries. The economy was kept red-hot through creation of greater money supply leading to greater debt. By the end of the cycle corporations and the public were swimming in red ink. And those government surpluses? All spent...........
Buddy Larsen said... Bearbee, what is important is not so much the debt as a number but the return on that debt. Our Treasury auctions are open, no foreign central banks are under pressure to bid in them. But bid they do, competitively, because USA is a safe haven and a good investment, and the debt they buy is both the much demagogued "foreign debt" and--at the same time--"foreign investment in the US economy".
Central banks are diversifying
more and more into alternative currencies because of our debt.
Safe haven?
Federal Reserve System: The Mark of the Bust
Recent large increases in foreign official holdings indicate that foreign private investors see fewer attractive places to put their money in the American economy. They could presage a significant fall in the price of American assets, stocks (witness the recent drops in American stock markets) and bonds and real estate and all, and a hard landing for a world economy still floating on the crest of cheap credit.
Two points:
It sure would be nice if all those people who like to jump on the NYT for its "relentless partisanship" kept this piece in mind before complaining about the next bit of news the Times decides to publicize. Don't think I'll be holding my breath, though.
It certainly is a good thing to get the deficit down. But I must say this doesn't look like a vindication of Laffer. The FR has been handing out money for several years. You would expect the financial sector to have made the most of its opportunity. So I think what we are seeing is a trickle of that free cash coming back. Expecting to solve our structural financial issues this way is like hoping to live off the tip jar at Starbucks.
SC, well, at least don't let that madcap distract you from writing, please--
;)
Bearbee, yes, many central banks are diversifying a few percent into gold and other currencies. Isn't this is a good thing for the global economy, that the system is liquid enough and stable enough to allow capital to flow toward best returns?
After all, USA was about two-thirds of the global economy after WWII, and thanks in no small part to this country, the rest of the world is catching up, and though our economy is now several times larger than then, it's now only one third of the global output.
To hold our relative position, we'd have to be what the enemy calls us, imperialists.
Well, we aren't--what we want is a stable, prosperous world, interlocked financially as a disincentive to beggar-thy-neighbor political economy--and the wars so generated.
The 20th century was a hundred-years war, and the global boom on now--raising billions of people out of poverty--would never be happening without a globally-minded USA leading.
So, the world's reserve currency is under some degree of foreign influence? It's the cost of insurance against more WWIIs.
yeh--apparently he skipped the deflator--there's a give-and-take linked thru instapundit--
original article here--
Not to flog Kudlow, but he's usually a pretty good analyst--his "stronger jobs" post points to yet another reason to cast a gimlet eye at much of MSM economic reportage.
You know what the amazing thing about the War on Poverty was? We were winning it right up to the moment we declared it.
The "absolute poverty rate" trendline -- projecting the definition into the past -- was -1 percentage point a year from 1900 to 1965. Even the Depression merely created a spike that had evaporated by 1950 and resumed the overall -1 a year trendline. Since it was roughly 80%, absolute poverty was, in 1963, on its way to a natural extinction in 1980 or so.
Then the War on Poverty was declared, and we've been bouncing between 16% and 11% ever since.
It might be that last residual poverty is very hard to eradicate, and the War on Poverty isn't actually responsible for the continued existence of poverty in the U.S. But at the very least, the War on Poverty hasn't actually reduced poverty.
Sarcasm Alert – but, with real numbers. Actual commentary follows sarcasm though. With a claim for BALANCED BUDGETS for BusMcChimpHitler in FY2008/9:
DownTownLad,
You tell us to look at FY2000 spending and match it to FY2006 spending. I'll take that and raise you - but with FY2001 (President Clinton's last budget):
FY2001 (President Clinton’s last budget, in billions)
GDP: 10,128
Individual Income Tax: 994
Corporate Income Tax: 151
Total Revenues: 1,990
DOD Expenditures: 290
Social Security Expenditures: 489
Total Expenditures: 1,863
Deficit: +127 (surplus)
FY2006 estimate (current budget, in billions)
GDP: 13,100
Individual Income Tax: 1,027
Corporate Income Tax: 352
Total Revenues: 2,375
DOD Expenditures: 512
Social Security Expenditures: 603
Total Expenditures: 2,658
Deficit: -280(deficit)
So GDP grows by: 28%
Individual Income Tax Revenue grows by: 3.3%
Corporate Income Tax Revenue grows by: 233%
Total Revenue grows by: 19.3%
DOD Expenditures grow by: 176% (not including supplemental)
Social Security Expenditures grow by: 23.3 %
Total Expenditures grow by: 42.7%
Lets make the easy cuts (to the biggest programs):
In FY2006 Social Security and the DOD consumed over $1,115 Billion (not including the supplemental)
Set DOD and Social Security to FY2001:
FY2006 Deficit: 280 - ((512 + 603) – (290 + 489)) = $44 Billion
That solves it. Our FY2006 deficit will be rounding error if we just pay out Social Security at a level of a few years ago – and hold the line on DOD spending…
We might be a weak horse with starving elderly – but we have balanced the budget…
Honestly though, the trend lines show something much different. At our current bloated spending level acceleration (growth about 7.5%) we will be running surpluses in four years. Our revenue growth rate has exceeded 10% since the Bush Tax Code changes. Thus, our growing tax base will eventually overcome our spending proclivity.
Not a good way of doing things, but…
However, I do see signs out there of Conservatives starting to act as Fiscal Conservatives. I hear signs of holding total government expenditure growth to the 3% – 4% range. Using the high range of growth (4%), we will balance the budget in two years. If held to a 3% growth we will be balanced in one year. Do you hear the power of the PorkBusters, eh…
Folks, with the size of our economy and our compliant tax base, we are talking about an easily surmountable rounding error annual deficit. And those rich bastards don’t seem to be spending a lot of time avoiding an ‘excessive’ tax grab – they just seem to be paying their fair share!!!
For the Lefties out there, don’t hang your hat on this one. It is too easily dealt with now that even the money drunk Republicans can’t seem to spend much more. Don’t let this be another laugher for Bush – like the one about the economy with wage growth and very low unemployment being a Hooverville… Yuk, yuk… Spend your time promoting a path to a lasting peace in Iraq.
Steven--subsidize something, you get more of it. Not to mention the constituency--the huge bureaucracy doing the administering. I always thought "Hands off my poor people!" would be a good Big-Gov motto.
Nice post, boghie--makes clear where the work needs doing.
noumenon, yep--but he was pretty clearly just talking about top-line growth. Revenues, rather than earnings, like.
Greg Mankiw's Blog at http://gregmankiw.blogspot.com/2006/04/hubbard-on-fiscal-future.html:
Hubbard on the Fiscal Future: Economist Glenn Hubbard (who preceded me as CEA chair and is now back at Columbia) has an op-ed in [the April 17] Wall Street Journal. He reminds us that unless we see significant entitlement reform, taxes are heading [much] higher:
Imagine the nightmare of a tax burden 50% higher -- not so farfetched as it sounds.... The Congressional Budget Office regularly quantifies these shadows of the Ghost of Tax Day Future. Their forecasts are not sanguine. A generation from now, absent any changes, increases in Social Security and Medicare spending alone are projected to consume 10 more percentage points of national GDP than they do today.
There is nothing very new here, but it is good to have Glenn saying it anyway. As George Orwell once said, "We have now sunk to a depth where the restatement of the obvious is the first duty of intelligent men."
dominion, remember the last State of the Union Address? When the pres lamented that he'd been defeated on SocSec reform, and the entire Dem side of the chamber jumped to its feet cheering and clapping?
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