Semi-Daily Journal

"The chances are great Mr. Bush will bequeath his successor a deficit to fill." What an understatement! Collecting 16% of GDP as revenue and spending 20% of GDP creates a deficit of 4%. To close the deficit to 2%, Mr. Bush will either have to increase revenue by 12.5% to 18% of GDP or cut spending by 10% to 18% of GDP or some combination of both. Cutting spending back to Clinton era levels cannot happen overnight and would requires several years of nearly flat budgets. Revenue enhancements anyone?? If everyone writing about the deficits would include the above simple percentages, the necessary policy choices would become clearer to the public.

All during his 6 years as TX gov, Mr. Bush never had to deal with an economic downturn. He is from the oil industry that always believes the next boom is just around the corner. His business dealings prior to gov were devoid of fiscal responsiblity. It is not clear that anyone in the GOP is concerned about the long run. Even in the late 90s, they were gung ho to pass unaffordable tax cuts.

CBPP shows that adusted for inflation, domestic spending for 2004 increases only 3.2% while defense spending increases 13.6 %. Where to cut???

http://www.cbpp.org/12-16-03bud.htm

The distinction must be made between the deficit and the debt. The deficit is much smaller than the debt, and would be much easier to retire. Strong economic growth during the late 90's did just that. The debt is much larger, and would be much harder to eliminate. In addition there are unfunded liabilities that make the debt look small. These represent promises by politicians to provide retirees with pensions and medical care. These promises pose a huge political problem. FDR and Democrats who followed him created these problems by failing to account for demographics in the design of the programs.

There is not enough money in the US economy to provide the benefits Congress has promised. Various solutions could resolve this shortfall, but almost all have some serious political pain attached. Howard Dean was viciously attacked for the mere suggestion that the age of eligibility might be raised.

Politicians are not eager to face attacks from their opponents and possible defeat because they propose solutions. This means there will be no meaningful effort put forward until a crisis develops. If present trends continue this would happen after 2020.

It is a really bad sign that the Bush team has set this sham goal of cutting the budget deficit in half in 5 years. The baseline they are using is their $500 billion deficit projection for 2004. This projection is probably high to begin with if you assume a good recovery in 2004. It also includes around $100 billion for the Iraq war, which we would certainly hope will be over in 5 years time. So their goal is the exact opposite of a stretch goal and includes little real deficit reduction.

I have hoped that at least as a part of political legacy management that Bush would want to get the deficit under control during his 8 years, but there is no sign of that to date. I hope there are true fiscally conservative sections in both the Democratic and Republican Congressional caucuses that call the Administration on this.

bakho,

I agree, the defense budget needs to be cut. Bush has used the War on Terror as a pretext for massive increases in the defense budget. I think the performance of our military in Afghanistan and Iraq show that we can build and maintain a very effective military at Clinton era spending levels. Now we will have to put up substantial supplemental spending for the duration of the Iraq War, but I find the massive increase in the baseline spending questionable. The War on Terror by and large does not call for massive conventional military operations. But the Administration's tactics in this regard have been extremely successful, with the Democrats apparently scared to death to question any Defense Department appropriation.

Deficits don't kill economies but they do disable them over time. Classic line. How did the WSJ get so lucky to have David Wessell to write for them?

Shamus wrote, "The debt is much larger, and would be much harder to eliminate. In addition there are unfunded liabilities that make the debt look small. These represent promises by politicians to provide retirees with pensions and medical care. These promises pose a huge political problem."

That's not the whole story. CBPP put out a study that shows that the future debt generated by the Bush tax cuts is about twice as high as the the future SS shortfall. People have attacked the CBPP report, but their arguments are based on looking at numbers in the far out years (75 years in the future).

Futhermore, SS is predicted to be solvent through 2040 or so.

More to the point---SS's solvency is supported by a regressive tax. The huge general fund deficits generated by Bush's tax cuts largely benefit those with high incomes.

You can't have your cake and eat it, too. For consistency, either you view SS as having separate inflows and outflows from the general fund, in which case Bush's contribution to the debt is much higher (and don't forget---SS is owed on the order of a trillion in debt, and that number will increase until 2017 or so). Or you take the unified budget view (the one usually used when people report debt and deficit figures), in which case a large chunk of federal inflows is from a highly regressive tax.

Joe Blog wrote, "Now we will have to put up substantial supplemental spending for the duration of the Iraq War, but I find the massive increase in the baseline spending questionable. The War on Terror by and large does not call for massive conventional military operations."

Amen. I never understood why the appropriate response to an event unleashed by boxcutters and airline tickets was a hike in military spending.

"But the Administration's tactics in this regard have been extremely successful, with the Democrats apparently scared to death to question any Defense Department appropriation."

I agree. But historically, it's very hard to vote against military appropriations, especially during wartime. This is why presidents can get away with not declaring war---Congress's only real rein on this behavior is the power of the purse, but for political reasons they're loathe to use it.

There are probably a few readers who don't know the history of the expression "Potemkin villages". Cecil Adams, who is usually (though not always) reliable discusses it here:

http://www.straightdope.com/columns/031114.html

Interestingly, it's apparently likely that full-blown Potemkin villages are a myth, with the truth being closer to a whole lot of spring cleanin'.

Whether this is relevant to Brad's choice of metaphor is unclear.

I was addressing only the current debt level in my comment. Congress can change the current tax policies, so it's hard to know exactly how much the debt will grow. Estimating what government finances will look like over the next several decades is a difficult undertaking. Global economic strength is only one variable that could significantly impact the projections. Analysing entitlement programs is only slightly easier. Medicare is likely to experience problems before Social Security, given that medical costs are rising faster than inflation. My opinion is that money taken from wages to fund entitlement programs is a regressive tax. I don't buy the argument that it's a premium paid into an insurance program.

I'm not familiar with this Wessel fellow, but he sure sounds shrill, don't you think?

Bush might have been bailed out of the deficits by another stock market boom, but the cuts in capital gains seem to preclude this.

shamus wrote, "Estimating what government finances will look like over the next several decades is a difficult undertaking."

Right. Note that the "official" SS long-term projection assumes a long-run GDP growth rate of 1.9%, IIRC.

"Medicare is likely to experience problems before Social Security, given that medical costs are rising faster than inflation."

I think most people agree with that. I don't think this means that Medicare is broken, however; I think it means our health care system as a whole is broken.

"My opinion is that money taken from wages to fund entitlement programs is a regressive tax. I don't buy the argument that it's a premium paid into an insurance program."

Fair enough. My point wasn't necessarily directed at you, but rather at those commentators out there who seem to want to have it both ways.

If we take your viewpoint, then one might ask why Bush and Congress should focus on cutting the income tax, instead of payroll taxes.

Political considerations dictated the focus on income tax cuts. Republicans designed the tax cuts, and their constituents pay more in income tax than in payroll taxes. Also, proposing a cut in payroll taxes is politically equivalent to painting a target on your back. Predictably, after Democrats proposed payroll tax cuts, Mitch Daniels responded that Social Security would be endangered. This ubiquitous scare tactic awaits any such proposal.

Shamus, the fix for SS is easy. We need a prez and Congress with the balls to stand up like Robin Hood to the wealthy and say, "fork it over buddy". These wealthy people have been sucking of the govt teat for too long and jeopardizing the retirement and incomes of ordinary folk. It is time they pay their fair share to support a society that allows them to live better than kings.

There is no pending financial crisis. There is only a fear of speaking truth to power.