Are these deficits AFTER the Social Security surpluses are used on general spending? Is Bush claiming to halve his budget deficit by 2009 by using the Social Security trust fund which he then claims isn't going to be there in 2018, because you can't trust Wahington, i.e. him??

Is there anyone w/ half a brain who ever believed the BS about halving the deficit?

I've just finished doing my taxes and cleaning up a year's worth of financial drek in my office. All filed. Great.

Now I'm going to draw up a budget for the next 12 months and I'm going to base it entirely on Bush's clever budget. I will pay mortgage and car payments. But I'm going to find special appropriations from others for my four or five thousand buck trip to France and Italy with some time spent in London and for the clothes I'll buy for that trip. Half my groceries during my coming fiscal year are going to be paid for by you, the taxpayer -- I just have to figure out how to do it.

Oh, and my unsustainable credit card deficit will be paid also by you AND/OR the Texas Lottery one way or another. It's been a great lesson to me, having Bush as a financial role model.

Once I get this set up, I'm going to do a series of TV ads advertising myself as a financial consultant.

The only deficits any politician ever discusses are the "unified" ones -- where additions to the trust fund offset deficit spending. At the end of the day, politicians may differ on tax policy but everyone likes spending. Its going to be a rude shock to the system when we go from getting an extra $100 billion/ yr from social security in the budget to paying out that amount. Given that all discretionary spending is only about double the swing we'll see, methinks something has to give -- higher taxes, fewer deductions, slashed medicare/ss. I also predict a budgetary "reform" sometime around 2018 that disallows ss trust fund money to be counted towards overall deficit.

This article and the CBO are referring to the "unified" budget. This uses the surpluses from SS and some other programs to offset the General Fund deficit. They do not include certain other off-budget items like the $100 Billion for the Iraq occupation in fiscal 2005.

The CBO makes certain assumptions that are unlikely to be true. As an example, the CBO assumes that certain programs will expire and that the Alternative Minimum Tax (AMT) will remain unchanged. This means that all of the tax cuts enacted since 2001 will expire, and are therefore NOT included (after expiration) in the 10 year forecast. In addition, the CBO assumes that the current AMT tax relief for middle class taxpayers will also expire. Currently 3 million taxpayers are subject to the AMT; the CBO shows by 2010 this will grow to 29 million taxpayers (mostly middle class). It is very likely that the AMT will be modified by Congress.

For fiscal 2005 (ends Sept) the REAL deficit will probably be:
$368 Billion (CBO forecast)
$100 Billion (Iraq)
$180 Billion (off-budget surpluses)
$648 Billion.

The REAL deficit over Bush's 2nd term will be close to $2.5 Trillion. So the CBO estimate is a "baseline".

Is this from the Department of Duh. Bush's budget proposal conveniently left out the costs of the wars in Iraq and Afghanistan, the costs of making the tax cuts permanent and any costs from Social Security privatization.

I have every expectation to see deficits running on the order of $350 to $600 billion including surplus offsets for the next 15 years.

The projections of $200 billion or less are hardly supported by any math that I have used or read about from serious parties.

I'm waiting for the foreign purchasers of Treasury securities to push back far enough from the table to force yields to jump.

The only deficit/debt numbers that alarm insiders appear to be numbers beginning with a T. The B is losing its effectiveness as a measure of concern.

We're headed for a real mess. Maybe the adults will take over once we hit our first Trillion dollar deficit.

I have a theory. It's no longer about money circulating around the economy, it's washing straight through. As close as I can google it, the derivatives market has gone from about 6 trillion in 1990, to 35 trillion in 1999, to 100 trillion in 2001, to over three trillion by 2004!
Where is this money coming from and where is it going? Essentially it is parimutual wagering that effectively serves to keep a potentially infinite amount of money in equilibrium. This means huge amounts of money can wash through the investment sector without automatic increases in inflation. Long term and junk bond rates have sunk almost to short term rates and inflation because there is no shortage of easy money and no sense that the old rules apply. Am I on track here? It's safe to say that no one knows what is going to happen.

I have a theory. It's no longer about money circulating around the economy, it's washing straight through. As close as I can google it, the derivatives market has gone from about 6 trillion in 1990, to 35 trillion in 1999, to 100 trillion in 2001, to over three trillion by 2004!
Where is this money coming from and where is it going? Essentially it is parimutual wagering that effectively serves to keep a potentially infinite amount of money in equilibrium. This means huge amounts of money can wash through the investment sector without automatic increases in inflation. Long term and junk bond rates have sunk almost to short term rates and inflation because there is no shortage of easy money and no sense that the old rules apply. The amount of money the government borrows is also meaningless, but it does serve to keep society functioning. Am I on track here? It's safe to say that no one knows what is going to happen.

I have a theory. It's no longer about money circulating around the economy, it's washing straight through. As close as I can google it, the derivatives market has gone from about 6 trillion in 1990, to 35 trillion in 1999, to 100 trillion in 2001, to over three trillion by 2004!
Where is this money coming from and where is it going? Essentially it is parimutual wagering that effectively serves to keep a potentially infinite amount of money in equilibrium. This means huge amounts of money can wash through the investment sector without automatic increases in inflation. Long term and junk bond rates have sunk almost to short term rates and inflation because there is no shortage of easy money and no sense that the old rules apply. The amount of money the government borrows is also meaningless, but it does serve to keep society functioning. Am I on track here? It's safe to say that no one knows what is going to happen.

Sorry about all those. It wasn't going through from my end!

I think the amazing thing about Bush's deficits is how he can cook the books so much and still have them come out so badly. It's a bit like that stuff in the original Bush-Kerry debates. You heard stuff about his "bulge," but you're tempted to just think, "no, he COULDN'T have been cheating, because if he had been cheating, he surely would have done better than he did."

As close as I can google it, the derivatives market has gone from about 6 trillion in 1990, to 35 trillion in 1999, to 100 trillion in 2001, to over three trillion by 2004!

I kept waiting for one of your posts to correct the obvious error — what's your actual estimate for 2004?

One thing to remember about the derivative markets is that they while they shift risk and offer leverage positions, they don't generally change the net positions. There are many reasons for the increase in derivatives -- many relating to tax-- but they don't change the fundamentals.

Good post Calculated.

If the Junior's first term is any indication, he started with a deficit of $5.6 Trillion (*Honest SS accounting*) and the deficit has now increased to $7.7 Trillion or a little over $2 Trillion in 4 years.

One has to take the CBO baseline and add to it those policies that are "not approved, but likely to be approved" as CalculatedRisk posts. (Think AMT, make tax cuts permanent, paying for Iraq without the Iraq oil money.....)

Given a $2 Trillion deficit over 4 years and given a running head start from Clinton's leftover surplus, there is no f**king way Bush is not going to hit the $2.5 Trillion (*honest SS accounting*) by 2008, barring some disaster or radical change. An administration that runs on the fiscal corruption of tax cuts for the wealthy and corporate welfare for the well connected can not produce a sound fiscal policy.

An important thing regarding derivatives is that J P Morgan Chase controls half of the market. If and when these contracts go bad, it is the taxpayers who will pay as the system implodes. That is derivatives are an excellent risk transfer medium. Presently they are working so the CEO/king of all he surveys plus a 100 top managers responsible for this business area are collecting mega-bucks bonuses while the game works. When the derivative contracts go bad, the bank fails, there is a bail out billed to the tax payers.

Reading a couple of Frank Partnoy's books on derivatives. Plus hearing the comments from Buffett, it is a question of when not if.

One reason the derivatives market grows so quickly. Money losing trades from the customers are rolled over into new contracts so the customer doesn't have to face the losses, they only pay additional fees and spillage. Look at Fannie Mae to see, barely, how money losing contracts get rolled over. At some point the losses have to be faced. Top managers exit the building with their prior years bonuses looking forward to consulting, Greenspam steps in to transfer the risk (money loss) to the tax payers in the form of a bail-out. Too big to fail principle.

skeeter,

I sort of fudged that a little bit because most of the articles were old, so the last figure might have applied to 2003, but i wasn't sure. It was a fast look, so if you want, google it.
Chris,
That is based on the assumption that the dollar itself is to big to fail. The irony of the neoconservative movement is that they mythologize government, money, etc. to the point that they think that they can't actually hurt them. Much like a spoiled child will attack their parents.

Calculated Risk: On what do you base your assumption that the AMT will be changed to provide relief for middle class taxpayers? I don't hear anyone clamoring for a change; as a matter of fact, most people don't even realize that they are paying it or that those checks they received last year went to the AMT and then some.

With no interest group looking out for their interests, the upper middle and middle class will continue to provide the money on which the tax cuts are predicated and the tax code will remain as it is. Tweaking the AMT also involves making changes in many other aspects of the code and I don't see Congress, at least not this partisan congress, taking the steps towards any real reform. The radicals running this administration will continue to provide relief for their base while the rest of us get screwed.

Maybe when enough people are kicked off the regular income tax and onto the AMT and they lose their ability to deduct their property taxes and their mortgage interest, people will sit up and take notice, but by that time there will be an incipient panic as the housing market starts to implode and the bubble deflates rather than bursts.

Just take a look at line 43 or 44 on your 1040 (I can't remember exactly which it is right now) and you will see how the AMT affected you this tax year. It is only going to get worse and no one realizes it is there until it is too late.

Don't look to either party to fix this. The tax itself was a Democratic invention under Johnson; its application became more "egalitarian" during the Reagan years and it has continued to stealthily roll along ever since then.

There is no question but that the Alternative Minimum Tax will be set aside, either year by year or permanently. I can not imagine any member of Congress wishes to have deductions on housing, or other deducations, negated for middle income tax payers.

anne-

I'm not sure AMT will be set aside soon, because getting rid of it will make the decificts look even worse. However, once a lot of taxpayers get hit it may be looked at. I find it interesting that neither party is talking about it.

Neither party is talking about the AMT?!?

One good thing coming from this whole Social Security proposal is that people are finally starting to talk about raising the payroll cap. Can anybody explain the reason for the cap in the first place? Or the point in calculating payroll seperately from everything else? (Er, the ostensible reasons. We're all familiar with the political hack on hand and his diffrentiation or non-differentiation as suits the goal of regressing the tax structure.)

My ideal would be to consolidate all national taxes into a single income tax with no diffrentiation between capital returns and labor, but that's clearly politically impossible (actually, as long as we're in fantasyland, let's consolidate state budgets too.) But raising the payroll cap? I mean, c'mon, that's obvious.

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Can anybody explain the reason for the cap in the first place?

If you think of Social Security as disability/age insurance, rather than an income transfer program, then the caps are there to provide something vaguely resembling actuarily fair premia.

Of course, things are more complicated that long-term, but that's the basic idea.