or
Join Now!
|
|
Home/Government/Politics
|
| Forum |
Ask A Question |
Question Board |
FAQs |
Search |
Return to Question Board
| Question Details |
Asked By |
Asked On |
| State of the US Economy |
ETWolverine |
02/22/07 |
This article is from The Christian Science Monitor
February 21, 2007 edition -
My comments are in Italics.
http://www.csmonitor.com/2007/0221/p01s03-usec.html
US deficit is shrinking, for now
With the robust economy, tax revenues are pouring in. But rising costs lie ahead.
By Mark Trumbull | Staff writer of The Christian Science Monitor
Despite the ongoing costs of US military campaigns in Iraq and Afghanistan,
And exactly why was it necessary for them to cite the war in Iraq and Afghanistan in the opening sentence of an article about national debt? Seems like the CSM is trying to take potshots at Bush, even as they report on something good taking place.
the outlook for the federal budget has grown substantially brighter.
Tax revenues are rising much faster than spending,
Remember this sentence. I'll be referencing it later
according to Treasury Department numbers released last week. The recent trend is strong enough that, were it to continue, the budget could move into surplus in barely a year, one economist calculates.
One year, huh? That would be about 5 years ahead of the best predictions of most economists two years ago... and MUCH better than the predictions of the anti-Bush anti-tax-cut doomsayers.
Already, the federal deficit is shrinking toward about half the size that it has averaged since 1970, when analyzed as a percentage of gross domestic product.
The shift reflects a strong economy, with higher incomes and corporate profits generating a bigger flow of tax revenue.
Again, notie the discussion of HIGHER TAX REVENUE. This is an important point that I will come back to later.
In turn, the Treasury's progress could help the economy by buoying investor confidence in the nation's fiscal position.
Although it is a welcome change, the improvement does little to stave off the long-run challenges to the nation's financial health, many economists say. Baby boomers are starting to retire, placing new demands on government. Costs for healthcare programs like Medicare are still projected to rise faster than overall inflation.
Isn't that the perfect argument for personal healthcare accounts? I would think so... but it seems that others think it means we need to be pouring more money into a failing (faile?) system that can't be fixed.
"The picture is getting brighter," and if there's no recession over the next several years "there are going to continue to be some good strides made," says Mark McMullen, a senior economist at Moody's Economy.com in West Chester, Pa. But "it's unlikely that we're going to see a balanced budget anytime in the near or long term."
Why not? If the deficit is decreasing to the point where we will see the deficit disappear within the next couple of years, why would we not see a balanced budget? If tax revenues remain strong and continue to grow, the result SHOULD be a balanced budget. The only thing that could keep the budget from balancing would be spending increases. So is someone planning to say "We have too much money coming in, we should spend more"? Apparently so. The problem isn't tax revenue, its government expenditures.
Some experts say the budget could achieve balance in the short run of the next few years. In unveiling its proposed budget this month, the Bush administration forecast black ink on the federal ledger in 2012. The nonpartisan Congressional Budget Office (CBO), in its recent annual outlook, also shows a surplus for that year.
A year ago, the CBO's forecast for the 2007 fiscal year called for a deficit of $270 billion. In the annual outlook released last month, the 2007 gap is projected at $172 billion.
"Right now, we're in some sense in a relatively good spot," says Jim Horney, a budget analyst at the Center for Budget and Policy Priorities, a liberal think tank in Washington. "We're in the sixth year of an economic expansion," a time when federal revenues often rise along with a growing economy.
But both the CBO and the White House make important assumptions that are far from assured.
And what makes them unassured? They seem to have been born out until now, despite the doomsayers' negative predictions.
The CBO's annual outlook assumes that President Bush's tax cuts phase out in 2010 as scheduled, thus adding new tax revenues.
Remember what I mentioned above about higher tax revenues NOW? Why would anyone predict that higher taxes would increase tax revenues when history has clearly shown the opposite to be true? As is the present case. Bush's tax cuts have resulted in higher tax revenue for the government. Why would phasing them out in 2010 increase tax revenue? If you do the opposite of what you are doing now, wouldn't you logically get the opposite result of what you are getting now?
Mr. Bush's budget calls for the tax cuts to be made permanent, but foresees a surplus in 2012 thanks to a sharp fall in Iraq spending and robust productivity growth in the economy.
Why is this an unrealistic assumption? Why should we believe that the war in Iraq will continue to cost as much as it has, and that we won't see any economic benefit from Iraq? And why wouldn't there be robust productivity growth? Is the CSM aware of some economic indicators of which nobody else knows?
But several issues are unsettled. Among them: How much will military operations in Iraq and elsewhere cost?
It doesn't really matter. If we are receiving more tax revenue, we can handle more expenditures for the war.
Will Congress make some of the Bush tax cuts permanent?
That is a key question. I think we can be certain that the current Congress WON'T make them permanent. But after 2008? Who knows.
Will Congress scale back the alternative minimum tax (AMT), which is poised to take a rising tax toll on middle-class Americans in the years ahead?
Another good question.
The answers will have a big impact on the budget, and may not be resolved before a new president takes office in 2009.
But since Bush will be in office until then, and since he will keep his tax cuts in place until then, we can expect his economic growth projections to be met or exceeded until then.
The long-term outlook remains sobering, all sides agree. The cost of Medicare, in particular, is slated to soar due to healthcare inflation and an aging population.
Again, can you say Personal Healthcare Accounts?
Even the near-term outlook comes with an asterisk. When Bush took office in 2001, the CBO was forecasting a decade of budget surpluses totaling more than $5 trillion. Then came a recession, the terrorist attacks of 9/11, and enormous wartime spending. The Bush tax cuts helped to stimulate the economy, but at the cost of lower tax revenue.
Ahem.... remember the sentence that I told you to keep in mind above? "Tax revenues are rising much faster than spending..." Is it just me, or did this article just contradict itself badly? On one hand it says that tax revenues are rising faster than spending, on the other hand it says that tax revenues decreased as a result of the Bush tax cuts. Well, which is it?
"We had three years where revenues went down," says Mr. Horney. "All that has happened is that we have ... caught up from the really bad decline that we had."
Actually, we far exceeded what tax revenues were before 9/11 and the recession. Horney doesn't know what he's talking about.
Still, analysts say the recent budget gains are good news for the government and the economy.
The budget deficit now stands at about 1.4 percent of the nation's GDP, well below the 2.3 percent that's been the norm since 1970, according to economist Michael Darda of MKM Partners in Greenwich, Conn. "At the current pace, the budget could move back into surplus as early as May 2008," Mr. Darda wrote in a report to clients last week.
That isn't a forecast, but it shows how the nation's fiscal health is closely related to that of the overall economy.
Duh... ya think?
A more stable budget outlook, in turn, has benefits for the economy.
No $h!t. I never would have guessed.
The less money the government has to borrow to pay its bills, the more is left for investment in new goods and services. Alternatively, the nation will be less reliant on foreign lenders to fund that investment – debt that siphons away a portion of national wealth.
"Unexpectedly strong revenue growth" has improved the outlook quite a bit, says Mr. McMullen.
In the CBO projections, for example, the nation's public debt is forecast to fall from 37 percent of GDP in 2006 to 30.5 percent of GDP in 2012.
In the longer run, the rise of entitlements such as Medicare could force difficult choices to keep that debt from rising again.
PERSONAL HEALTHCARE ACCOUNTS!!! How many times do I have to say it?
Conservatives say it will be vital to contain costs. "If nothing changes in Washington then both revenues and spending will be higher," says Chris Edwards, a tax expert at the libertarian Cato Institute in Washington. "It'll hammer the economy," he says, as government takes a larger share of GDP.
Definitely true. While I love the Bush tax cuts, I am pissed at his lack of use of the veto pen to kill pork. And I'm pissed at the former Congress' Republican leadership for not holding spending down. We definitely need a change in Washington.
Others say the answer will probably involve tax hikes as well as some reductions in promised entitlement benefits – and that a modest increase in taxes need not damage economic growth.
I don't really have a problem with the decreases in benefits. But if the Bush tax cuts have resulted in higher tax revenues, why would you then raise taxes and reverse that trend?
Both sides agree on the need to tame medical inflation, if not on how to do it.
Have I mentioned Personal Healthcare Accounts? Cut the insurance companies out of the loop, and healthcare costs for the patient will drop, without decreasing payment to the doctors. We cut costs by cutting out the middleman... like Geico."
"If we were able to reduce the growth of the cost of healthcare," says Horney, "that would definitely be good for the economy."
Again, a comment that falls into the "no $h!t" category.
----------------------
Good news, badly reported.
Hey maybe that should be the Christian Science Monitor's new slogan.
Elliot |
|
Your Options |
Additional Options are only visible when you login! !
|
|
|
|
