About that "insignificant" deficit

[Aragorn]

From today's NY Times:

"Using what economists say is the most reliable measurement, the $455 billion represents 4.2 percent of the total economy, somewhat less than the 1983 deficit in the administration of President Ronald Reagan, which was 6 percent.

"But in only six years since 1946 has the deficit been larger than 4.2 percent of the gross domestic product. Not counting the current surplus in the Social Security fund, the deficit would be 5.7 percent of the total economy, the largest since World War II except for 1983, when there was no Social Security surplus.

The second largest deficit since before I was born and no end in sight to the deficits. That is not insignificant. Also,

"The deficit picture has worsened by $789 billion, from a surplus of $334 billion to a deficit of $455 billion, in just two years."

[adios]

I certainly didn't say the deficit was insignificant, just that it's hyped. Did you read the Wall Street Journal editorial today about the budget deficit? Basically it stated that same things that I wrote in my post only revenues are going to be worse than expected. In the editorial they attributed 53% of the current deficit to revenue declines (I didn't check the math myself). Also they pointed out, correctly, that defense spending as % of GDP has increased quite a bit from the Clinton administration lows. The editorial pointed out that even Howard Dean has acknowledged that defense spending had to increase after 9/11. It's certainly worthy of debate as to what percentage of the budget should go to Defense spending. On the other topics forum I pointed out that Medicare and Medicaid spending is out of control. Here are the three reasons why the Clinton administration was able to have a surplus when considering the total federal budget:

1. Record revenues due to many factors including record low levels of unemployment, high corporate profits, and high capital gains from a big stock market rally.

2. A significant decrease in defense spending as a percentage of GDP. The Wall Street Journal editorial I referred to pointed out that this level of defense spending had not been seen since before 1940.

3. A constant growth rate in Medicare and Medicaid spending. During the Clinton administration Medicare and Medicaid growth was held more or less constant due IMO to the Clinton administration's get tough policy on Medicare and Medicaid fraud as well as pressure on providers to keep their charges inline.

Medicare and Medicaid spending has resumed it's accelerated growth rate under the Bush administration. Again referring to the Wall Street Journal editorial, it stated that increasing taxes will not balance the budget but I think that's open to debate although I agree with what was stated in the editorial. The facts are these:

1. Government revenues have declined significantly since 2000.

2. Government outlays have increased every year for the last 40.

3. You can't balance the budget when revenues are declining and outlays are increasing.

What programs do you want to cut and by how much? IMO you can't get government spending under control without some sort of Medicare and Medicaid reform as a start.

[Wildbill]

I don't think to place blame for the deficit at this time and further I don't think a deficit is the worst thing. What I oppose and I think most do is the sense that many Republicans give us that a deficit doesn't ever matter and that if they are allowed to they will insure there is one until the end of time. This arrogant attitude of "yeah we agreed to a $350 billion ceiling on tax cuts, but mark our words this thing will become permanent damn the deficit" doesn't exactly go over well. When Republicans learn and convince us that they will be responsible over time, that they will indeed only do these things to be temporary fixes instead of endless cycles of further giveaways, then maybe much of the country will come around and see them as being rational leaders. Until then I think a lot of people find their rhetoric and endless battle for yet another tax cut to be quite troubling.

[adios]

"When Republicans learn and convince us that they will be responsible over time, that they will indeed only do these things to be temporary fixes instead of endless cycles of further giveaways, then maybe much of the country will come around and see them as being rational leaders."

Oh you mean they might get a majority in the Senate and House as well as win the White House someday? I've been reading that Bush is getting a lot of advice to push hard for a bill to add outlays for prescription drugs for medicare. The reason is to pander to the over 65 constituency which will make him a lock for 2004. Of course it will add megabucks to medicare outlays. If the strategy is right, then austerity probably isn't a great message or vote getter. To be fair I'm not reading or hearing about many concrete Democratic proposals to recitify what is arguably out of control spending on Medicare and Medicaid. Scream about dead beats on Welfare and get tough on em but don't mess with the sacred cows. IMO rightly or wrongly the Democrats have the label of being tax and spend while the Republicans have the label of being fiscally responsible advocating a strong defense.

[Aragorn]

>>What programs do you want to cut and by how much?

For a start I wouldn't have gone into a war which will cost us at least $100 billion this year. Also, I wouldn't have done the large tax cuts.

I could list plenty of programs to cut, but it won't happen.

[Aragorn]

They are not the poor people, although there are people who abuse the system. It is the elderly. Our entire system of taxation and benefits is a massive transfer of money from the young and working to the old and retired.

The other massive transfer of wealth is to the Middle East. We send massive amounts of money over there for a product we burn. Then we send more money over there and burn some more.

Here's my politically impossible solution. We put large additional taxes on gasoline and we refund every penny of it based on average driving in a region. If you drive an energy efficient car, you come out ahead. If you drive a gas guzzler, you pay through the nose for the priviledge. If you drive an average car, you about break even.

I know it will never work that way. The public would scream. Congress couldn't keep their hands off the revenue. But it would be a great way to provide incentives for enery efficiency and helping our trade balance.

[Ashe]

Hey! I like my Jeep.

I agree that the tax cuts were a little much, but in theory, the war will pay for itself in the future, from Iraqi oil.

Anyway, back to the tax cuts. They don't really mean too much. Living in a highly taxed area, New Jersey, I see my state and local taxes already rising to completely eliminate any benefit I will receive from the federal cut. I hear most state governments are doing this.

Goodbye tax cut. /forums/images/icons/frown.gif

[Wildbill]

Highly taxed? Buddy just go across one of the rivers into New York or Pennsylvania and see what highly taxed really means! I am not about to say Jersey is a low tax state, but on most surveys it comes up in the middle or better. Want a real joke, go work in Philly or NYC and pay an exorbitant local income tax on top of a state income tax on top of a federal income tax and you will quickly run back to Jersey and say good riddance to that. Living in Nevada I recognize we do have it good as far as taxes go, but I am well aware of what taxes are in most places and actually you don't have it so bad, especially on things such as gas and other excise taxes.

[Wildbill]

Tom they used to be the fiscally responsible party but it only takes a few bad years and look now, I bet they aren't seen that way but too many people. Fiscally sane? They are gaining a reputation for being tax cutters for the rich. I don't say it that way, but a lot of the public sure does. In any event these types of titles just don't go too far really, people vote for candidates more so than parties and with so many liberal Republicans and conservative Democrats these titles don't do much good.

Bush definitely tries to do too much to get elected, he has the special interest constituency of the month club, the seniors turn has come up. This medicare "mess" just drives me crazy. What mess is there? I say it again people want the best coverage and care and the lowest price (none) and act like the only thing keeping them from getting it is an unhelpful Congress. If only life were so easy. Sometimes this democracy we have makes me cringe, its not about merit or good, its about promises and then lies. You know what would be a great idea, but probably never happen. Have a "mid-term approval". The representative has to be approved midway through their term, if they are voted out they can't run again for a couple cycles. If they are voted back in we don't waste time and lies on a campaign. Then it would be simple, the candidate makes a list of things to accomplish and if the people think s/he isn't getting it done s/he is tossed and we move onto someone that lives up to their word. Fair enough?

[Aragorn]

>>In theory, the war will pay for itself in the future, from Iraqi oil.

How exactly is that going to work? The proceeds from any oil sales are supposed to go to rebuilding Iraq.

Or are you talking about all the sweetheart contracts going to Halliburton?

In reality, I could think of only one rational reason to war with Iraq. To bring the Iraqit oil back on the market and keep world oil prices from getting too high. It may be that the right thing was to trade blood for oil. But all this stuff about making the world safer and doing something about terrorism is a bunch of nonesense.

And the government will find Iraq a money pit, even if some American companies do VERY well over there.

[Aragorn]

Just be willing to pay more for the right to contribute to our current account deficit.

[Aragorn]

>>Tom they used to be the fiscally responsible party but it only takes a few bad years and look now, I bet they aren't seen that way but too many people. Fiscally sane? They are gaining a reputation for being tax cutters for the rich.

The problem with the Republicans is when they started to buy into the "supply side" nonesense. It sounds great to be able to tell people the government can cut taxes and afford to pay for more services. The problem is it doesn't work.

>>people vote for candidates more so than parties and with so many liberal Republicans and conservative Democrats these titles don't do much good.

Anothr problem is that the folks in the middle who you describe don't have as much voice in the parties as the conservative Republicans and the liberal Democrats. This is particularly true in the nominating process.

>>Bush definitely tries to do too much to get elected, he has the special interest constituency of the month club, the seniors turn has come up. This medicare "mess" just drives me crazy. What mess is there? I say it again people want the best coverage and care and the lowest price (none) and act like the only thing keeping them from getting it is an unhelpful Congress. If only life were so easy.

The mess exists and is mostly two problems. 1) Medical costs are skyrocketing, the number of people on Medicare is rising, and they are living longer using more services. Already the cost is taking up a huge portion of the federal budget and it is going to keep squeezing the budget until we can't afford to pay for it. 2) Drugs costs are very high (probably artificially boosted by drug companies who sell much cheaper overseas and play games ot keep generics off the market), and far too many seniors are forced to choose between medicine or food.

I must confess I know about the 2nd problem from annecdotes, and I don't know how wide-spread the problem is. But I do have older relatives, and I know how much they spend on medicine. I would have a hard time with their monthly bills of $500 to $2,000 for medications.

The Medicare "mess" is not a fiction.

[adios]

A trite but true thought is that there really isn't that much difference between the 2 parties. Yeah I agree with your points.

[adios]

Curious though that in the era of disinflation starting in 1980 the highest GDP growth rate on an annualized compounded basis occurred during the Reagan administration and it was quite a bit higher than during Bush Sr's or Clintons administration. Also interest rates started their long steady decline during the Reagan era although I've heard arguments from some that low interest rates are bad. Even though Reagan lowered taxes shortly after he took office (well he got the legislative ball going so to speak), his 1986 tax "reform" bill actually tightened up loopholes and eliminated deductions while drastically reducing the number of brackets (the number of brackets has increased since). Now as a percentage of GDP the Reagan administration ran much bigger deficits than today. Most of it can be attributed to the massive rise in defense spending as percentage of GDP. I think it arguably led to the Clinton "peace dividend" where defense spending was cut by a huge amount as a percentage of GDP. Whether or not this all adds up to a dismal failure of supply side economics I don't know but I don't think so.

[AceHigh]

"his 1986 tax "reform" bill actually tightened up loopholes and eliminated deductions "

Wasn't his tax "reform" bill actually a tax raise? That's the way I remember it.

"I think it arguably led to the Clinton "peace dividend" "

The peace dividend was largely available do to the collapse of the Soviet Union. Did Reagan's arms build up force the Russians to match us and lead to there collaspe or was it inevitable?

[Aragorn]

>>Now as a percentage of GDP the Reagan administration ran much bigger deficits than today.

This is only true for one year of the Reagan administration. See the first post in this thread.

[adios]

"This is only true for one year of the Reagan administration. See the first post in this thread."

Nope wrongo. Here's a list of budget deficits as a percentage of GDP since 1980. Negative numbers represent surpluses.


<ul type="square"> 1980 2.69
1981 2.58
1982 3.96
1983 6.04
1984 4.83
1985 5.13
1986 5.03
1987 3.22
1988 3.09
1989 2.82
1990 3.86
1991 4.54
1992 4.67
1993 3.89
1994 2.93
1995 2.24
1996 1.40
1997 0.27
1998 -0.80
1999 -1.37
2000 -2.43
2001 -1.27
2002 1.53
[/list]

We can debate "off budget", "on budget" and "total budget" relevancy but basically my view is inline with the CBO view regarding this. I believe I posted a link about it in my "Cross Post" post. Is the amount that is deducted from paychecks for Social Security a tax (a regressive one at that) or an investment in your retirement? You tell me.

[adios]

"Wasn't his tax "reform" bill actually a tax raise? That's the way I remember it."

Probably but I'm certain it depends on your marginal tax bracket(s). We're talking a lot of tax brackets with a higher and higher rate. Looking at the data there was a significant increase in revenues between 86 and 87.

"The peace dividend was largely available do to the collapse of the Soviet Union. Did Reagan's arms build up force the Russians to match us and lead to there collaspe or was it inevitable?"

My view and we could debate this one endlessly is that the collapse was inevitable but Reagan policies hastned the process.

[Ashe]

But PA? Are you serious? They have amish people out there for god's sake. Of course the amish don’t pay taxes… lucky amish… Anyway, my local taxes are huge and were just increased by 18% a couple of months ago. Maybe cause I don’t live in Newark…

Thinking of moving to Nevada... /forums/images/icons/smirk.gif

[Ashe]

What I heard when the war was just starting, was that the US government was going to reimburse itself for the costs of “liberating Iraq”, not just rebuilding Iraq, by using Iraqi oil. I just assumed that meant taking a lot of oil. I’m not sure about all the ethics behind this, or even if this still holds true, but it sounds like a plan to me.
/forums/images/icons/smirk.gif

[Ashe]

Cigarettes cost over $5 a pack here, isn't that an excise tax? The governor also just slashed homebuyer rebates, and the taxes on corporations, S-corps, and partnerships were greatly increased this year, so much so that it will probably drive a lot of small businesses out of NJ into the tax hell that you call Pennsylvania.

Anyway, my whole point was that most states are or will be raising taxes to compensate for the spending that they became so accustomed to during the “good times.” Also with the federal rate cuts, many state programs won’t be receiving the federal funding that they used to. This will put added pressure on the states to make up the difference, and again, the states will raise taxes.

Did your survey mention that? /forums/images/icons/smirk.gif

[brad]

the treasury just released a report on debt obligation of US gov.

u might want to look at that.

btw, the (tremendously astronomical) figure was immediately criticized as an obvious and farcical lowball figure.

[Aragorn]

I think the idea of business relocating because of tax policy is mostly a myth. The costs of movng are much too high, and you never know when the low tax state you moved into will raise rates.

Companies picking a location for a new plant is a bit different, but taxes are only one factor. But companies love to play it up to try to get tax concessions.

[Wildbill]

Nevada is good for tax, but honestly it rarely enters my mind. Put simply taxes tend to matter in such differing ways and the more you owe, the more you can seemingly lower what you pay. Here we have an employee tax you pay per employee. Now say you are starting out and face a couple years of losses and need a good number of people to get running, much as dot.com needed. You're screwed here on tax, you've got nothing but tax costs on those people, costs that cannot be written off against future gains, so you tell me are you better off here? Nope. While the state likes to talk up its strong ratings in taxes and such, it really isn't a place to come UNTIL you have made it. Especially since truly talented people are in horrendously short supply here, even for easier tasks. Truth be told I could walk out of work and find another gig in days, but then I would have to do a lot of crap I would rather avoid. But it always is clear to me that despite the ease bright people could get a job still hasn't drawn them despite the clear tax benefits. What the state has are plenty of retirees and a lot of mediocre talent people, those that think merely in terms of costs, not opportunity.

No I am here for other reasons and I tell everyone to stop thinking small stuff like taxes and think more about where you are going and what area gets you there. The "votes" by the talented to remain in tax disasters CA and NY seems to back me up on this.