June 14, 2006

Pay No Attention to that Shrinking Deficit Behind the Curtain!

Carroll Andrew Morse

Unless your top budgetary priority is high tax rates, there’s good short-term news regarding the Federal budget deficit being reported in the Investor’s Business Daily (h/t Instapundit). The Federal deficit may be cut in half this year…

Aided by surging tax receipts, President Bush may make good on his pledge to cut the deficit in half in 2006 -- three years early.

The 2006 deficit through May was $227 billion, down from $273 billion at this time last year. Spending is up $130 billion, or 7.9%…

With the economy topping $13 trillion this year, a $270 billion deficit would equal less than 2.1% of GDP, easily beating the president's 2.25% goal. Bush made his vow when the White House had a dour 2004 deficit forecast of 4.5% of GDP, or $521 billion. The actual '04 deficit came in at $412 billion, or 3.5% of GDP, before falling to $318 billion, or 2.6% of GDP, in 2005.

A CBO analysis last week noted that withheld individual income and payroll taxes are up 7.6% from a year ago, with the gains picking up in recent months…

Corporate income taxes are up about 30% from last year's pace.

However, the long term trend is not so rosy. Larger deficits are likely in the future, unless there is reform in automatic entitlement growth…
Long-term growth in Social Security, Medicare and Medicaid "threaten to force either European-style tax increases, unprecedented spending cuts or unprecedented debt," said Heritage Foundation budget expert Brian Riedl. "There's no growing out of the long-term budget problems."

Heritage sees an $800 billion deficit in 2016, assuming tax cuts are extended and spending stays on its present course. If the economy and tax receipts continue to outperform, the deficit would still be at least $600 billion, Riedl said.

He noted Congress has been more disciplined about discretionary spending lately. But that saves a mere $10 billion a year, he said.

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Gosh & golly. Don't suppose it ever occured to anyone to put forth any, oh, evidence of this claim?

Actually, Angry Bear did, in a post, dated 6/14 and titled:

Investor’s Business Daily Channels Free Lunch Supply-Side Spin


Wonder why you didn't link to that site in support of your contention?

Once again, we get a lesson in the difference between a "nominal" increase and a "real" increase. Angry Bear even provides graphs: the first shows nominal receipts, and by golly, tax revenues have increased.

The second, however, tells a different story. I'll let you go find out for yourself. But, here's a hint: it doesn't exactly support your contention.

So, maybe next time, you can put up some evidence? Sorry, but I'm not going to take your word on anything.

In the mean time the Bureau of Labor Statistics tell us:

Real average weekly earnings fell by 0.7 percent from April to May after
seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor.

A 0.3 percent decline in average weekly hours and a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) were partially offset by a 0.1 percent rise in average hourly earnings

http://www.bls.gov/news.release/.../ realer.nr0.htm

PS. -0.3% + 0.1% = -0.2%.

So we're in the hole there, too.

Yup, and Bushie-boy wonders why he's not getting credit for this 'great' economy.

Posted by: klaus at June 15, 2006 9:53 PM


After a tax rate cut, it's not exactly stop-the-presses news that tax receipts as a percentage of GDP go down. That's kind of the intention.

When the economy grows, the Federal government doesn't necessarily grow at the same rate. So if you believe that the purpose of taxes is to pay for government, there's no reason why taxes should be a fixed percentage of GDP.

I guess if you believe that taxes should be set by ideology rather than by what they pay for, you come to a different conclusion.

And if you won't accept CBO numbers as "evidence" then what will you accept. Kevin Phillips' press releases perhaps?

Posted by: Andrew at June 16, 2006 10:56 AM