Fiscal Insouciance

12 July 2006



Bush Touts Deficit of “Only” $296 Billion

The latest figures from Washington suggest that the federal budget deficit for the fiscal year that ends September 30 will be a mere $296 billion. Not even General Motors can lose this kind of money, but the public sector as run by the current incarnation of the GOP excels at such losses. Maybe, the president’s joy stems from the fact that, in February, he announced the gap between what Uncle Sam takes in and what he spends was likely to be $423 billion. Strange days indeed when the Republicans happily swim in red ink that deep.

The White House estimate upon which President Bush bases his Pollyanna view says that taxes on the wealthy and on corporate profits boosted revenue, thereby cutting the gap. The Congressional Budget Office, a much more dispassionate operation, agrees with caveats. There is a 13% increase in tax receipts, and the factors cited by the president are largely responsible. However, the CBO notes that taxes from these sources come in quarterly, and therefore, are prone to greater fluctuation. Income and payroll taxes, on the other hand, are up only 8%.

The White House immediately heralded this change as proof that its tax-cut policies are working. "Economic growth fueled by tax relief has sent our tax revenues soaring,” the president claimed. However, it was the tax relief that sent the deficit soaring faster than the tax revenues came in. Moreover, tax cuts for the wealthiest don’t turn into increased spending that will drive the economy; the wealthy already consume as much as they usefully can. Instead, they buy assets, which drives up prices for things like stocks, bonds and real estate. That is where bubbles come from.

Remember, though, that this is the same bunch that promised a cake walk in Iraq. When the president announced his $1.35 trillion tax cut in 2001, he promised that this current year would have a surplus of $305 billion. He’s off by $600 billion, which was how much the federal government received in 1981 in total revenue, even though Mr. Reagan spent more than that. In 25 years, and only 8 of those under a Democratic president, the Republicans have increased the size and reach of government in absolute terms. What was once the federal budget is now the margin of error in calculating the federal budget.

Some of the president’s supporters note that the wars in Afghanistan and Iraq have cost more than originally planned (indeed, they were to have been free thanks to the oil in the latter). However, the accounting reality is the wars have no effect on the deficit. They simply aren’t counted because they are funded using emergency appropriations. The $2 trillion cost these engagements may eventually generate will be off the books. So, things are really even worse, and one had best kiss one’s great grandchildren now, if one can. When they come of age, they will curse the present generation for their debt inheritance.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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