The Center on Budget and Policy Priorities turns out to be a very good prophet of what is in the Bush administration's proposed budget:
Posted by DeLong at February 2, 2004 02:10 PM | TrackBack | | Other weblogs commenting on this postDEFICIT PICTURE GRIMMER By Richard Kogan, David Kamin, and Joel Friedman: Enactment of the 2001, 2002, and 2003 tax cuts has filled the tax code with tax reduction measures that are scheduled to expire between 2004 and 2010. If Congress makes all expiring tax cuts permanent -- and there will be strong pressure to do so -- ...the projected ten-year deficits will increase by $2.2 trillion (including the added interest payments on the debt).
In addition, while three million tax filers will be subject to the Alternative Minimum Tax in 2004, that figure is set to explode in coming years unless current AMT relief -- which expires at the end of 2004 -- is continued. Continuation of that relief -- a near-certain event -- would increase the ten-year deficit by at least another $658 billion.... [T]he baseline understates defense and international costs.... [T]he baseline funding levels fail to cover fully the costs of the Administration's own Future-Year Defense Plan.... According to CBO's estimates, fully funding the AdministrationÕs Future-Year Defense Plan and the war on terrorism would add $1.5 trillion in defense-related spending, including interest....
Other analysts have reached similar conclusions about likely deficits. For example, Brookings economists estimate the deficits at $5.5 trillion over the ten years from 2005-2014. (Their estimate is modestly larger than the one presented here, primarily because it includes a somewhat larger cost for AMT relief.) Deficit estimates from Wall Street firms such as Goldman Sachs are similar as well. This projection of $5.2 trillion in cumulative deficits over the next ten years includes $2.4 trillion in surpluses in the Social Security trust funds. Outside of Social Security, the projected ten-year deficits total $7.6 trillion.
These projections contradict Administration claims that deficits, as a share of the economy, will be cut in half in five years. The President's budget, to be released February 2, is likely to meet this self-constructed goal, but it will do so only by leaving out about $200 billion in likely costs in 2009, the fifth year... exclude the costs of extending relief from the mushrooming Alternative Minimum Tax after 2005; to omit the costs after 2005 or 2006 of extending a series of very popular tax breaks that come up for renewal every couple of years and always are extended; to leave out the costs of fighting terrorism internationally after September 30, 2004; and to fail to reflect the full costs of the Administration's own Future Year Defense Plan.
In this regard, the Administration's budget for years after 2005 is likely to be something of an exercise in fiscal fantasy. Instead of being cut in half over the next five years, the deficit is likely to hold steady at above 3 percent of GDP through 2010, and from there to rise to approximately 3.9 percent of GDP by 2014 and higher levels in subsequent years....
The unanswered question:
2003 revenue was $1.78 Trillion
2004 revenue is projected $1.82 Trillion
CBO projects 2005 revenue at $2.05 Trillion
CBO estimates we know include the expiration of some Bush tax cuts and no AMT fix.
Bush is proposing $2.4 Trillion in spending and a $360 Billion deficit, meaning 05 revenue would have to be $2.04 Trillion. Where does he get the additional revenue if the tax cuts are permanent? Will revenue that increased only $40 billion from 03 to 04 really increase by a whopping $220 billion between 04 and 05 without raising taxes?
Has he proposed 2005 spending of $2.4 Trillion and figured the deficit before tax cuts as $360 billion and then proposed extending tax cuts that are not figured??
Questions questions questions.
The CBPP report says,
"Although revenues will rise as the economy recovers from the recession, they still will average only 17.1 percent of GDP over the coming decade (2005 through 2014), assuming the recent tax cuts are extended and AMT relief is continued. "
But the recession ended in 01, the economy expanded at 4% last year and revenues are still down. Do they mean once the jobs recover, the % of revenue will go up? If so they did not say what they meant.
Posted by: bakho on February 2, 2004 05:45 PMHow soon does the economics of sustainability kick in? How fast does the economy have to grow to cover the service charge on this debt? When will investors wake up and smell the burnt coffee?
Posted by: Knut Wicksell on February 2, 2004 06:02 PMKrugman addresses the revenue shortfall in his 2/3 column. Good for him.
http://www.nytimes.com/2004/02/03/opinion/03KRUG.html
Posted by: bakho on February 2, 2004 06:19 PMIf Bush didn't have the "Don't change horses in the middle of a race" idea goign for him, I'm convinced he'd have a strong primary challenge, if for no other reason other than the debt.
I've asked in the comments at a few blogs run by conservative friends of mine, and not a single one of htem has stepped forward to say that they honestly feel Mr. Bush can cut the deficit in half in 5 years, let alone the fact that many say it's the wrong goal; they should want it balanced.
One of these days the "Conservatives" will regret putting party loyalty above fiscal sanity. And it'll happen right about the time that they're paying 2x the current tax rate to cover the old debt.
If you have a minute, visit my web page, please. Thanks.
Table 19-1 in Budget Analytic Perspectives is really weird. Total receipts in fiscal 2003 were $339 billion less than was estimated back in February 2002 -- a 15% shortfall. $76BB of the shortfall is due to the 2002 and 2003 tax cuts, $62BB is blamed on economic reality not matching rosy projections, but most of it -- $201 billion -- is attributed to "technical factors".
OMB explains (p. 330) that "This net reduction was primarily attributable to lower-than-anticipated collections of individual and corporation income taxes of $131 billion and $44 billion, respectively", which is about as meaningful as saying that unemployment is caused by people being out of work. One wonders what sort of snakes lurk in the darkness of "technical factors".
CBO assumes 5.1% GDP growth between 04 and 05. They project revenue as 16.7% of GDP in 05, up from 16% today. We are not being told why revenues are down so far. Why should we believe that they will improve in the future? Does the administration have a plan to collect more revenue? Or do they hope that $100 billion magically appears? An improvement in employment would help but not $100 billion worth.
Posted by: bakho on February 3, 2004 07:12 AM"If Congress makes all expiring tax cuts permanent -- and there will be strong pressure to do so -- ...the projected ten-year deficits will increase by $2.2 trillion"
I would think budget deficits would put strong pressure to not do so.
Posted by: Chad Peterson on February 3, 2004 08:20 AMChad Peterson wrote, "I would think budget deficits would put strong pressure to not do so."
Well, they can lie about budget deficits, and the media won't call them on it.
And as long as the economy is as far below full capacity as it is now, it's likely that the deficits won't put *that* much upward pressure on rates. Especially with China and Japan buying up Treasury notes at the rate they've been doing.
Posted by: liberal on February 3, 2004 01:06 PMWe are healthy only to the extent that our ideas are humane.
Posted by: Saunders Patricia on May 2, 2004 03:40 PMMake it your guiding principle to do your best for others and to be trustworthy in what you say. Do not accept as friend anyone who is not as good as you. When you make a mistake do not be afraid of mending your ways.
Posted by: kim bo ram on May 3, 2004 02:51 AMIt is never a mistake to say good-bye.
It's never right to say always, and always wrong to say never.
Posted by: Manwaring Jeff on June 30, 2004 07:10 AM