Budget deficit narrowing, CBO reports

[Jamie_B]

[color="red"]Budget deficit narrowing, CBO reports[/color]
[b]Growing economy credited for decline in red ink from last year's record [/b]

[quote]Updated: 12:51 p.m. ET Aug. 15, 2005
WASHINGTON - The federal budget-deficit picture turned brighter Monday as congressional scorekeepers released new estimates showing the level of red ink for the current fiscal year would drop to $331 billion.

The new report by the nonpartisan Congressional Budget Office, which does budget analysis for lawmakers in Washington, gave the latest proof that surging revenues and a steadily growing economy are combining to bring the deficit down from a record $412 billion posted last year. CBO predicts a $314 billion deficit for the budget year starting Oct. 1.

The report is welcome news for President Bush, who has seen the budget situation deteriorate markedly from predictions of unending surpluses when he took office in January 2001.

“The CBO report confirms the dramatic improvement in the 2005 deficit picture that the administration reported last month,” said Scott Milburn a spokesman for the White House budget office. “A strong economy fueled by tax relief is generating stronger-than-projected revenues.”

The White House foresees a $333 billion deficit for the year that’s about to end and a $341 billion deficit for next year.

Last year’s deficit was a record in dollar terms, though many previous deficits in the mid-1980s and early 1990s were larger when measured against the size of the economy. The White House and most economists say that the more relevant measure of the deficit is to weigh it against the size of the economy. Measured that way, the latest estimates for this year are slightly worse than recent historic averages.

But Democrats on Capitol Hill were quick to issue warnings about the long-term deficit picture, which will worsen considerably after the Baby Boom generation starts retiring in large numbers after the turn of the decade.

Long-term outlook called dire
“While this year’s deficit will be lower than last year’s record shortfall, the improvement is likely to be short-lived. Declarations of victory over budget deficits only distract from the disturbing long-term budget outlook,” said Kent Conrad of North Dakota, top Democrat on the Senate Budget Committee.

Unlike White House estimates released last month, CBO assumes that Bush’s tax cuts are allowed to lapse at the end of the decade. Most of the cuts in Bush’s signature $1.35 trillion tax relief law enacted in 2001 expire by 2010, but many lawmakers and the White House assume that they will be renewed by then.

Even if the tax cuts were allowed to expire, the budget would still stay in the red through the full 10 years covered by CBO’s report.

If the tax cuts are renewed, the deficit picture would worsen by $204 billion in 2011 — to perhaps $327 billion or so. By 2015, the cost of extending the 2001 and subsequent tax cuts would reach $432 billion.

By CBO’s scorekeeping rules, the agency must also assume that the costs of occupying Iraq and Afghanistan will stay at current levels, which probably inflates long-term projections. Congress in May passed an $82 billion measure to provide more war funding, and CBO must assume spending would continue at that rate.

Surpluses vanished three years ago
The projection for the deficit at the end of the current budget year on Sept. 30 remains far worse than when Bush took office. At that time, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.

Instead, deficits returned three years ago after four years of budget surpluses. The chief reason was that forecasters assumed that a surge in revenue in the late 1990s — fueled in large measure by the stock market boom — would continue.

The economy hit a recession, the market tumbled and a surge in homeland security spending after the Sept. 11, 2001 terror attacks combined to produce a return to deficits.

In early 2004, Bush said his goal was to cut the deficit in half in five years. Then, the White House forecast the deficit to be $521 billion for the 2004 budget year, and the president said his goal was to see that halved, to about $260 billion by 2009.[/quote]

[Guest bengalrick]

shhhhhhh... don't let this news get out.. [img]http://forum.go-bengals.com/public/style_emoticons//3.gif[/img]



great news, btw... i guess the cut in the deficit wasn't only a one time thing, like i heard in this old [url="http://forum.go-bengals.com/index.php?showtopic=6874&st=0"]thread[/url]... what now guys

[Guest bengalrick]

this is a not-so-rosy article explaining the deficit problems in the future... though it goes against what i'm saying now, it speaks alot of truth imo and reflects some of homers objections to what he will say about the situaion, i think...

we need to reform medicare, medicaid, and social security... you guys should know by now, my views on SS, but the other two are looked past at all costs in congress... socializing these problems are not the answer imo... that will hurt much more than help...

i still think this is good news, that two times in a row, we are ahead of where we thought we'd be at this point... and the reasoning for this is increased revenues... not higher taxes obviously... good news is good news, but we also must try to understand the baby boomer problem b/c it's coming... go back to the old thread i posted in my last post, and you can see some good ideas that homer had come up w/... if homer and i agree on something, i think it should be noted

[url="http://www.usatoday.com/news/opinion/editorials/2005-08-15-deficits-edit_x.htm"]usatoday.com[/url]

[quote][b]The danger of deficits[/b]

By Isabel Sawhill


Put away the champagne. Sweep up the confetti. The applause that echoed around Washington on Monday with the revelation that the budget deficit will be only — only — $331 billion is misguided and, perhaps, reckless.
Psychiatrists have clinical terms to describe how most elected officials are responding to the deficit — denial, repression, magical thinking. In short, they're doing next to nothing. There is a deafening silence — from the halls of Congress and corporate boardrooms to the living rooms and voting booths where Americans make decisions about their own and their children's futures.

In fact, there is some good news on the deficit front. The Congressional Budget Office outlook for 2005 has improved markedly since its March projection. But no one should be lulled into thinking that this good news will last. The problem will get much worse if nothing is done. Deficits will become unsustainable when baby boomers begin to retire in 2008 and are poised to balloon out of control a generation hence, wreaking havoc on today's younger Americans.

Solutions are all painful. We need to reform the three major entitlement programs (Social Security, Medicare and Medicaid), curb soaring health care costs, raise federal revenue (yes, that means taxes), cut low-priority spending and impose budgeting rules.

President Bush deserves praise for putting Social Security reform on the table, but his proposed private accounts would add $5 trillion in deficits over two decades. He talks about halving the deficit in five years, but the most recent congressional budget blueprint actually increases deficits by $168 billion over that period. The prescription drug law will add a half-trillion dollars or more over the coming decade.

The bigger picture

Social Security is a surprisingly small part of the problem. Medicare and Medicaid costs will increase four times faster than Social Security.

If the big three entitlement programs — 42% of federal spending — grow at present rates, either everything else that government does will be crowded out, or a 33% tax increase will be needed by 2030. If taxes stay at current levels, no money will be left for national parks, highways, extra police, better-trained teachers, veterans' health care, and the environment. Without deficit reduction, just interest on the debt will absorb one out of every three personal income tax dollars collected by 2015.

But why should anyone care?

One danger is that Asian and other central banks, which hold a huge and growing chunk of American debt, could stop financing our deficits. Interest rates would rise, stocks and bonds would plunge, and recession would follow.

Another possibility is that increasing federal debt — combined with America's dwindling private savings — would mean much less money available to invest in new infrastructure and equipment, new technologies and new businesses. And a cardinal rule of economics is: Less investment means less economic growth and a slower increase in living standards.

The failure to address deficits reflects wishful thinking, irresponsible political rhetoric and myopia. We'd need indefinite economic growth of more than 4% per year, something the U.S. economy did not do even during the go-go late 1990s, when growth averaged 3.3%. Selective cuts alone wouldn't work either because only 19% of the budget is not for mandated entitlement programs, defense, or debt interest.

Finally, it's myopic to believe that budget deficits just don't matter. You would be hard-pressed to find an economist who concurs.

So, what's to be done? We need to reform Social Security and Medicare eligibility and benefit formulas: We could raise the eligibility age as life expectancy rises, and reduce benefits for the well-off, but protect lower-wage workers. We could transform Medicare from an open-ended, fee-for-service system to one protecting all Americans from catastrophic expenses. Those with limited means would be given enough to buy a basic health plan, but no one would be guaranteed unlimited care at public expense.

Plenty of federal programs are ineffective, obsolete, or cater to politically powerful elites — and could be cut. The big hitch is politics.

The U.S. tax system cries out for overhaul. It must be simpler, fairer and more conducive to growth and efficiency. We could introduce a modest consumption or value-added tax, and eliminate $200 billion in tax subsidies.

What might be most troubling is the lack of presidential leadership and bipartisan congressional action to restore fiscal sanity.

What will it take? Another Ross Perot? A stock market crash? Rallies in Washington? The Chinese moving their money into euros?

A serious approach

There's a better way: Thoughtful Republicans and Democrats could seek compromises as they did in the 1983 Social Security reforms, the 1986 tax reform, or the budget agreements. An independent, high-profile commission on deficit reduction — like the military base-closing commission — could be appointed. It could provide not only recommendations but also political cover for the president and Congress to act.

The longer we wait, the more painful actions will need to be, and the more likely that fiscal termites in the economic woodwork will bring down the house. If there's a silver lining, it is this: The deficit challenge gives Americans a unique opportunity to re-examine the role of government and how we pay for it. And, if we act now, we can ensure prosperity and security for our children and grandchildren.

Isabel Sawhill is vice president and director of the Economic Studies Program at The Brookings Institution.[/quote]

trust me, it hurts to post an article like this, but i agree w/ a lot of it...

[Guest bengaljet]

I'm so glad you want to reference numbers. Jamie what you failed to read in your article was "remains far WORSE than when Bush took office.SURPLUSES of $5.6 Trillion projected by WH and Congress(Republican majority)".Where'd it go?
John Spratt showed on a chart the differences between the "conservative" W and the "liberal" Clinton. The last yr of Clinton was a "SURPLUS" of +$236 Billion seemed as if the "Clinton years" were to the SURPLUS side and W has been below the ) line ever since. You like -$331 Billion or +$236 B ? So tell me what's conservative mean-BIG SPENDERS?
W said the deficit spending was going to be -$500 B and instead it was -$441 B---is that a savings in your world? In my world comparing W's LOW(-$441 and Clinton's HIGH(+236 ,looks to me to be a $677 Billion difference.
ON SS,if you have $$thousands that you've saved-I say put it in the stock market like W says. Columbus took a chance,show us the way on this stock market deal-be a leader-----DON'T be paranoid.

[Jason]

[quote name='bengaljet' date='Aug 16 2005, 08:53 PM']I'm so glad you want to reference numbers. Jamie what you failed to read in your article was [b]"remains far WORSE than when Bush took office.SURPLUSES of $5.6 Trillion projected by WH and Congress(Republican majority)".Where'd it go?[/b]
John Spratt showed on a chart the differences between the "conservative" W and the "liberal" Clinton. The last yr of Clinton was a "SURPLUS" of +$236 Billion seemed as if the "Clinton years" were to the SURPLUS side and W has been below the ) line ever since. You like -$331 Billion or +$236 B ? So tell me what's conservative mean-BIG SPENDERS?
W said the deficit spending was going to be -$500 B and instead it was -$441 B---is that a savings in your world? In my world comparing W's LOW(-$441 and Clinton's HIGH(+236 ,looks to me to be a $677 Billion difference.
ON SS,if you have $$thousands that you've saved-I say put it in the stock market like W says. Columbus took a chance,show us the way on this stock market deal-be a leader-----DON'T be paranoid.
[right][post="132036"][/post][/right][/quote]

Do you remember that little event that happened on September 11, 2001?

[Guest bengalrick]

[quote name='bengaljet' date='Aug 16 2005, 07:53 PM']I'm so glad you want to reference numbers. Jamie what you failed to read in your article was "remains far WORSE than when Bush took office.SURPLUSES of $5.6 Trillion projected by WH and Congress(Republican majority)".Where'd it go?
John Spratt showed on a chart the differences between the "conservative" W and the "liberal" Clinton. The last yr of Clinton was a "SURPLUS" of +$236 Billion seemed as if the "Clinton years" were to the SURPLUS side and W has been below the ) line ever since. You like -$331 Billion or +$236 B ? So tell me what's conservative mean-BIG SPENDERS?
W said the deficit spending was going to be -$500 B and instead it was -$441 B---is that a savings in your world? In my world comparing W's LOW(-$441 and Clinton's HIGH(+236 ,looks to me to be a $677 Billion difference.
ON SS,if you have $$thousands that you've saved-I say put it in the stock market like W says. Columbus took a chance,show us the way on this stock market deal-be a leader-----DON'T be paranoid.
[right][post="132036"][/post][/right][/quote]

yeah, and the last year of clinton, he also sent us in a tailspin which led to a recession, thanks to high taxes and high rates... we also experienced 9/11, and a few corporate scandals, and a war (for me its all the war on terror, but to you its two wars)... clinton left us in great shape

[Homer_Rice]

I saw this earlier today. Just a few notions here:

1) CBO does good work. That said, how is this measured? Keep in mind that many of these numbers are derived from projections, and as such, are liable to change with future inputs/outputs and policy changes. It's like sticking your wet finger into the air to test the wind; a fair predictive tool, but not something to plan a future on.

2) Deficits, in and of themselves, are not necessarily bad. It depends on where the capital is being used. If you are building capital intensive projects (like the three gorges dam from another thread) then there may be justification for taking on debt. It's how it's managed and the productive capacity of the ecomony to sustain the debts that matters.

I've just finished reading a good book that might offer some insight to the processes associated with national debt and economy: [u]And The Money Kept Rolling In (And Out): Wall Street, the IMF, and the Bankrupting of Argentina[/u], by Paul Blustein.

It's basically an account of the recent crises that Argentina experienced. It's detailed, pretty straight-forward and explained well, from an "establishment" perspective, and worth the time if this sort of inquiry floats your boat.

[Jamie_B]

Jet can you show me where I gave an opinion one way or the other? I thought I had just posed the article.

[Guest bengalrick]

homer, is that more a story type of book or does it read more of an education book... in other words, exciting or boring?

[Homer_Rice]

I'm not exactly the right person to ask the difference between exciting and boring! Once I got really pumped up about some research I wanted to do on the development of NYC's sewer system and the professor of the seminar looked at me, shrugged his shoulders, and sighed, "I guess if that's what you want to write about, then I'll have to read it."

It's pretty straightforward journo-style, and he tells a pretty good narrative, explaining concepts where necessary in pretty clear language. There's a lot of questions that a professional might ask, based on the book, but for the interested reader/layman, it's not too bad at all.

You can probably pick it up from your local library, that's where I got it. Thus, if you don't like it, you haven't spent any money on it.