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| All You Need to Know About the U.S. Fed. Budget Deficit |
| 2005-01-26 |
| From the Wall Street Journal, appears on page A16 of the dead tree version. Submitted in full. In our continuing quest to save readers' time, we suggest you skip all of those alarmist stories in today's newspapers about the latest federal budget deficit estimates. They will have you believing that the feds are starved for cash, which defies everything we've ever learned about the way government works. All you really need to know about the latest Congressional Budget Office figures is contained in the nearby chart. Fred, could you fetch the chart from the web page? It didn't copy along with the text. And I'm the apocryphal end-user, so there's no point in me trying -- I'm more likely to crash the entire world wide web than to actually succeed. Thanks! The darker bars at the bottom measure the annual budget deficit as a share of the U.S. economy, showing that it will steadily decline throughout the rest of this decade. From 3.6% of GDP in the 2004 fiscal year, the deficit will fall steadily to an insignificant 0.5% of GDP in 2011, assuming continued economic growth. We realize these CBO estimates don't include future spending on the war in Afghanistan and Iraq. But as CBO points out, revenues are expected to grow rapidly over the decade, especially in individual income taxes. The progressive nature of the U.S. tax code means that, as growth raises incomes, more and more people are pushed into higher tax brackets, even if President Bush's tax cuts are made permanent. Budget estimates beyond the current year are always a guess, and CBO's is hardly more educated than others, but the larger point of these numbers is that with even a modicum of spending restraint the federal deficit will fall back to zero over the next few years. The other thing to know is revealed in the lighter bars in the chart, which show debt held by the public as a share of GDP. This is the most telling measure of the federal debt burden because it indicates a country's ability to service that debt. And the chart shows the U.S. burden staying more or less constant through this decade despite the fact that annual deficits will add to the total amount of debt. Even at 38.6% of GDP in 2006, debt held by the public would remain well below the 49.4% level hit in 1993, the most recent peak year. And it would also be well below the general government debt burden in Germany (51.9% of GDP), France (42.7%) and especially spendthrift Japan (79.3%), according to statistics from Bear, Stearns & Co. Compared with other industrial nations, in short, the U.S. is in strong fiscal shape. Bear, Stearns economist David Malpass adds the cheeky point that, despite its high debt burden, Japanese interest rates are close to zero. This would tend to refute the claim -- made so often by politicians who want to raise taxes -- that deficits cause higher interest rates. Robert Rubin, call your press agent. This bit is important: It is also true that these debt figures do not include the future liabilities for Medicare and Social Security that politicians have promised. But Congressman John Spratt (D., S.C.) and other self-described "deficit hawks" could raise taxes beyond their wildest dreams and never raise enough revenue to pay for those promises. The only way to reduce those liabilities is to reform those entitlement programs -- for example, with private Social Security accounts that will build wealth over time. Any politician who moans about the "deficit" or the "national debt" and opposes entitlement reform is really arguing for a tax increase. |
| Posted by:trailing wife |
| #6 I'm not an economist, but from what I've read it's a bit misleading to cite the Federal Government's debt as a percentage of GDP. Only our government's revenues can be used to pay down the debt. Also our country is suffering from twin deficits -we also have significant trade deficits and inspite of our devalued dollar which should have helped selling more of our goods and services abroad. A devalued dollar without trade benefits is bad. We are forced to sell more Treasury bonds to countries like China and Japan. If they start increasing the interest rates on the money they have loaned us, we could be screwed. Look it's all well and good to call this occupation of Iraq as a WOT, but unless this Admin. cuts its spending, foreign investors could give two hoots whether or not Iraqis vote or Afghans have a soccer game with soccer balls instead of human heads. It's the bottom line that counts, and investors are looking at us as an increasingly bad risk for re-paying the debt we are accumulating with them. |
| Posted by: 2xstandard 2005-01-27 12:11:21 AM |
| #5 The chart also doesn't reflect the future costs of the WOT (currently running what, about $80B a year?) and the revenue impact of making the last four rounds of tax cuts permanent (originally passed with 10 year sunsets which aren't likely to occur). Even with all that factored in, though, the percent of GDP news is pretty good. The chart isn't likely to show the impact of not vigerously fighting the WoT. A picture of an exploding bomb would suffice. The chart doesn't show the recent paydown of the deficit by virtue of increased revenues by stimulating the economy with massive tax cuts. |
| Posted by: Hillary Clinton 2005-01-26 7:05:26 PM |
| #4 The chart also doesn't reflect the future costs of the WOT (currently running what, about $80B a year?) and the revenue impact of making the last four rounds of tax cuts permanent (originally passed with 10 year sunsets which aren't likely to occur). Even with all that factored in, though, the percent of GDP news is pretty good. |
| Posted by: VAMark 2005-01-26 4:23:25 PM |
| #3 A2u -- of course you don't have to read, darlingest. Just imagine the piggy picture, and I'll bring you some milk and cookies shortly. |
| Posted by: trailing wife 2005-01-26 2:08:51 PM |
| #2 I thought it would just be a picture of a piggy w/money in its' mouth and raining $. I actually have to read????? |
| Posted by: anonymous2u 2005-01-26 11:18:40 AM |
| #1 Thanks for the read, I have been trying to enlight people harping about the U.S. budget deficit that there is a reason that in the U.S. press we are always shown the Dollar-amount and not the actual percentage. |
| Posted by: ocasional lurker 2005-01-26 9:46:27 AM |