Federal Deficit Position Improving Rapidly

[muck]

...because I thought some of you would be interested.

 

No link; text from an economic newsletter I receive:

 

The federal deficit is shrinking quite rapidly and if the current pace is continued for another year the budget would actually move into a surplus. The rapid reversal of fortune is taking place despite the continued expense of the Iraq war and other budget demands. This has come as a shock to many but the reality is that such a devlopment is not only predictable but expected when certain circumstances occur. The problem with managing deficits is that these circumstances are more than a little difficult to deliberatly engineer. The short answer to why the deficit has started to shrink is that he US government is making a lot more money and spending just a little less. Just as in an average household facing debt it is easier to pay it down by getting a big raise than by saving more of the current income. The bottom line is that the economic growth of the past few months has meant larger tax contributions from business and wealthier individuals.

 

The deficit has already been reduced to about half of what it has averaged since 1970 as a share of the GDP and at the current pace the budget deficit could be wiped out in a couple of years. The lower the deficit numbers, the more global investment makes it into the US and that speeds the reduction even further. A year ago the Congressional Budget Office forecast a deficit of $280 billion and now it is looking at $172 billion as a prediction. Now come the caveats. These rosy numbers depend on several assumptions. The first is that the Bush tax cuts expire in 2010, the second is that the Iraq War winds down in the next two years. The third assumption is that the US GDP growth remains close to 3% for the next three years and it is assumed that Congress will not take advantage of the shrinking deficit to pursue additional spending programs. All of these are very big assumptions but not out of the realm of possibility.

[Savage Beatings]

GB Nancy Pelosi... she did it!

[spain]

GB the Clinton Tax increases...

[The Irish Doggy]

and it is assumed that Congress will not take advantage of the shrinking deficit to pursue additional spending programs.

 

 

 

riiiiiight.

[AtomicCEO]

Yeah... I'm skeptical.

[Kid Cid]

So the bottom line is that there is no plan on reducing the deficit and we are relying on serendipity to make it go away. Excellent choice!

[Yukon Cornelius]

So the bottom line is that there is no plan on reducing the deficit and we are relying on serendipity to make it go away. Excellent choice!

 

yah nice eh

[spain]

So the bottom line is that there is no plan on reducing the deficit and we are relying on serendipity to make it go away. Excellent choice!

 

Serendipity seems to be working well...

[Azazello1313]

here is a recent :

Despite the ongoing costs of US military campaigns in Iraq and Afghanistan, the outlook for the federal budget has grown substantially brighter.

 

Tax revenues are rising much faster than spending, 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.

 

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. 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.

 

"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."

 

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.

 

The CBO's annual outlook assumes that President Bush's tax cuts phase out in 2010 as scheduled, thus adding new tax revenues.

 

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.

 

But several issues are unsettled. Among them: How much will military operations in Iraq and elsewhere cost? Will Congress make some of the Bush tax cuts permanent? 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?

 

The answers will have a big impact on the budget, and may not be resolved before a new president takes office in 2009.

 

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.

 

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.

 

"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."

 

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.

 

A more stable budget outlook, in turn, has benefits for the economy.

 

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.

 

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.

 

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.

 

Both sides agree on the need to tame medical inflation, if not on how to do it.

 

"If we were able to reduce the growth of the cost of healthcare," says Horney, "that would definitely be good for the economy."

[Azazello1313]

So the bottom line is that there is no plan on reducing the deficit and we are relying on serendipity to make it go away. Excellent choice!

 

well, yeah. that is also pretty much exactly what happened in the 90s when we attained a surplus. it is sustained economic growth that is the fundamental driver behind treasury revenues.

[Yukon Cornelius]

well, yeah. that is also pretty much exactly what happened in the 90s when we attained a surplus. it is sustained economic growth that is the fundamental driver behind treasury revenues.

it wasnt good then and isnt good now

[Randall]

Did this involve the White House inflating the deficit projections(again) to say it is going down?

[skins]

well, yeah. that is also pretty much exactly what happened in the 90s when we attained a surplus. it is sustained economic growth that is the fundamental driver behind treasury revenues.

 

 

That is not exactly true. Clinton's administration actually cut government waste and spending in a lot of areas.

 

Do the articles above include the Iraq/Afghan war spending in the budget numbers? Because they have not been included for years, even though the admin is going to do it next year.

[Azazello1313]

That is not exactly true. Clinton's administration actually cut government waste and spending in a lot of areas.

 

well, contrary to popular belief, so has the bush admin. most civilian agencies have had their budgets cut pretty drastically in the last few years. and i'm not talking the reduction-in-the-rate-of-growth kind of cut, i'm talking cuts like one year the operating budget being 10% LESS than the previous year.

[TimC]

Shhhh, now that the Dems are in control, the good news the media has been supressing can start to come out.

[dmarc117]

another notch for gw's belt

[Kid Cid]

another notch for gw's belt

 

What's that make, one? And it only happened because he ignored it? That's a take charge prez right there.

[skins]

well, contrary to popular belief, so has the bush admin. most civilian agencies have had their budgets cut pretty drastically in the last few years. and i'm not talking the reduction-in-the-rate-of-growth kind of cut, i'm talking cuts like one year the operating budget being 10% LESS than the previous year.

 

 

Very good to hear.

[Caveman_Nick]

What's that make, one? And it only happened because he ignored it? That's a take charge prez right there.

 

 

 

That's the idea. Be heavy with the blame for everything, but under no circumstances give any credit

[jetsfan]

well, contrary to popular belief, so has the bush admin. most civilian agencies have had their budgets cut pretty drastically in the last few years. and i'm not talking the reduction-in-the-rate-of-growth kind of cut, i'm talking cuts like one year the operating budget being 10% LESS than the previous year.

 

 

Very good to hear.

 

 

Yes, NASA's budget has gone from less than 1% of the federal budget to much less than 1%.

 

[muck]

If we turn this political, it's gone.

 

Can't we all just get along?

[CaP'N GRuNGe]

Has Bush been lining the CBO with report editors like he did with the former energy industry guy that was editing the scientific reports on global warming?

[Randall]

It's easy to make claims you are ,owering the deficit when you inflate projections. When I read things like this I seriously doubt adm projections.

 

January 4 articles in both The New York Times and the Los Angeles Times reported President Bush's claim in a January 3 Wall Street Journal op-ed that his administration had achieved its goal of cutting the 2004 budget deficit in half (as a percentage of gross domestic product) by 2009. But neither outlet noted that the 2004 deficit figure Bush claims to have halved is the Office of Management and Budget's (OMB) projected shortfall from that year -- $521 billion, or 4.5 percent of GDP -- which greatly exceeded the actual 2004 deficit of $412 billion, or 3.5 percent of GDP. When compared with the projected 2004 shortfall, the 2006 deficit of $248 billion, or 1.9 percent of GDP, is indeed less than half as large. But when compared to the actual 2004 deficit, the 2006 shortfall remains above the halfway point.

 

In January 2004, Bush vowed to "cut the deficit in half over the next five years" as a percentage of GDP. The White House pegged this pledge to the OMB's projected FY 2004 deficit, therefore making the goal a deficit of 2.25 percent of GDP or less by 2009. In the wake of this pledge, however, numerous economists noted that the OMB projection appeared to be severely inflated, making it much easier for Bush to meet his asserted goal. For instance, on February 3, 2004, The New York Times reported:

 

William Gale, a budget analyst at the Brookings Institution, said Mr. Bush had implicitly made his deficit-reduction goal easier by projecting a surprisingly high budget deficit of $521 billion this year. Under the current budget plan, Mr. Bush can fulfill his deficit pledge even if the government has a shortfall of $237 billion in 2009. By contrast, the administration's budget plan last year proposed reducing the deficit to $190 billion by 2008.

[H8tank]

You people are pathetic. Go outside and smell some flowers.

[rbmcdonald]

Please keep in mind that when the federal deficit reaches -0-, what that means is that total public debt has stopped growing, and can remain the same. What is your share of total public debt in this country?

 

 

Date 6/30/2006

Population 282,216,952

Total Debt 8,420,041,947,892

 

Individual 29,835

Family of Four 119,341

 

Date 6/30/2005

Population 285,226,284

Total Debt 7,836,495,788,085

 

Individual 27,475

Family of Four 109,899

 

Date 6/30/2004

Population 288,125,973

Total Debt 7,274,334,972,199

 

Individual 25,247

Family of Four 100,988

 

Date 6/30/2003

Population 290,796,023

Total Debt 6,670,121,155,027

 

Individual 22,937

Family of Four 91,750

 

Date 6/30/2002

Population 293,638,158

Total Debt 6,126,468,760,400

 

Individual 20,864

Family of Four 83,456

 

Date 6/30/2001

Population 296,507,061

Total Debt 5,726,814,835,287

 

Individual 19,314

Family of Four 77,257

 

Date 6/30/2000

Population 299,398,484

Total Debt 5,685,938,087,296

 

Individual 18,991

Family of Four 75,965

 

 

 

http://www.treasurydirect.gov/govt/reports...debt_histo4.htm

 

http://www.census.gov/popest/estimates.php

 

http://www.brillig.com/debt_clock/