We're stuck in a rut. We need a new topic.

[Corlyss_D]

OMB Projects Reduced Budget Deficit for Fiscal 2005, on Track with Bush's Goal

By Jonathan Allen from The Congressional Quarterly
Posted July 14, 2005


The federal budget deficit for the current fiscal year is projected to be $333 billion, down sharply from $427 billion forecast in February, the White House Office of Management and Budget (OMB) said Wednesday.

The new estimate for the year ending Sept. 30 tracks closely with last week's revised projection by the Congressional Budget Office (CBO), which forecast a fiscal 2005 deficit of less than $350 billion and possibly less than $325 billion. Deficit projections from the two budget offices have diverged in the past.

The fiscal 2004 deficit totaled $412 billion, $10 billion less than CBO's August estimate and $33 billion less than OMB's mid-session review.

Most of the improvement this year, according to OMB and CBO, results from higher-than-anticipated tax revenue from corporations and individuals. Republicans in the White House and Congress were quick to credit the economic stimulus provided by President Bush's tax cuts for the increased revenues.

"Once in place, tax relief has produced the desired results," OMB Director Joshua B. Bolten said.

"Republican policies of spending restraint and tax relief have put in place the ingredients of a strong economy: shrinking deficits, continued job growth and record homeownership," House Speaker J. Dennis Hastert, R-Ill., said in a statement.

Democrats pointed out that the administration has not included some future costs, such as the full price of military operations in Iraq and Afghanistan, in the five-year period that the budget covers.

"As bad as the projected deficits seem, the true picture is worse," John M. Spratt Jr. of South Carolina, the top Democrat on the House Budget Committee, said in a statement.

"This year's deficit will still be the third highest ever, and only the current Republican party would celebrate such a poor record," said House Minority Whip Steny H. Hoyer, D-Md.

The OMB's mandated mid-session review projects that the deficit will continue to decline over the next few years. Those projections show Bush meeting his goal of "halving" the projected $521 billion fiscal 2004 deficit an amount that would have been 4.5 percent of gross domestic product in 2007, ahead of his five-year goal.

According to OMB's projections, the deficit would initially rise to $341 billion in fiscal 2006, and then fall to $233 billion in fiscal 2007 and $162 billion in each of 2008 and 2009, before rising slightly to $170 billion in 2010.

In February, OMB projected the following deficits: $390 billion in 2006, $312 billion in 2007, $251 billion in 2008, $233 billion in 2009 and $207 billion in 2010.

Some analysts have said increased revenue from individual and corporate income taxes may be a one-time spike attributable to several factors, including an expiring tax break and a strong stock market in 2004 that produced big capital gains.

Sen. Jim DeMint, R-S.C., praised the administration's fiscal policies but warned that the picture is not entirely rosy.

"Before anyone breaks out the champagne, we need to recognize that these numbers don't tell the full story. Congress is raiding Social Security to mask the true size of the deficit," said DeMint, author of a Social Security overhaul proposal.

Social Security trust funds remain in surplus for now, and that surplus is included in deficit calculations. In future years, as the retirement system struggles to pay benefits to the baby boom generation, that surplus will be exhausted.

Jim Nussle, R-Iowa, the House Budget Committee chairman, cautioned that a declining deficit is no reason for lawmakers to line up for more spending.

"I don't want any of this to sound the dinner bell for anybody who is out there interested in more spending," Nussle said. "We have to remain vigilant with regard to spending."

[Corlyss_D]

Deficit estimate lowered $94 billionBy Patrice Hilland James G. Lakely

THE WASHINGTON TIMES
July 14, 2005

Surging revenue from growing incomes and stock market gains prompted the White House yesterday to lower its estimate of the budget deficit this year by $94 billion, in what it said was the best revenue performance since 1981.

The dramatic reduction in the deficit estimate to $333 billion for the year ending Sept. 30 reflects sharply higher receipts at the Treasury since April, averaging $1 billion more a day, or 14 percent higher than last year's levels.

The Congressional Budget Office (CBO) and private economists also have revised their deficit forecasts to reflect an improving revenue trend as the economic expansion matures, the stock market recovers and the unemployment rate declines to a historically low 5 percent.

The CBO and the White House attribute the revenue gains to several factors, including a pickup in bonus and stock-related income for top earners, a one-time tax holiday for corporations repatriating income from overseas and the expiration of a tax break for corporate investments at the end of last year.

In announcing the brighter deficit picture, President Bush noted that it puts the administration ahead of schedule on its commitment to shave the deficit by half from its peak of more than $400 billion in fiscal 2004.

"It's a sign that our tax-relief plan, our pro-growth policies, are working," Mr. Bush said after a Cabinet meeting. "These numbers indicate that we're going to cut the deficit in half faster than the year 2009, so long as Congress holds the line on spending."

But the improvement will be short-lived, forecasters say, because federal spending on Social Security, Medicare and other entitlements is projected to balloon as the baby boomers start retiring at the end of the decade.

The revenue windfall, far from ushering in a brief period of surpluses as a similar revenue surge did during the 1990s, will leave a deficit that is still the third-largest in history.

But as a share of the $11 trillion U.S. economy, the deficit will drop to 2.7 percent -- a moderate level by historical standards, noted Office of Management and Budget Director Joshua B. Bolten.

"We're seeing what happens when you have a strong economy -- more businesses investing, more people working with more income," he said.
Revenues are improving at all levels, he said, but the government does not have enough information to determine exactly the biggest factors contributing to the windfall.

Because the surge has emerged since the tax deadline in April, economists say it appears to be largely a result of taxes that are not withheld from wages -- including capital gains, corporate profits and stock-related personal income.

The 1990s revenue surge appeared suddenly and mysteriously as well. Only in retrospect was it determined to be mostly the result of the booming stock market.

In particular, stock options, a popular form of compensation during the 1990s, enriched the Treasury because they usually are taxed at the highest individual tax rates of more than 30 percent, rather than lower capital-gains rates when they are exercised.

Since 2002, fewer corporations have been giving their executives and employees stock options as a result of the scandals at Enron, WorldCom and other companies, in which executives were accused of manipulating their books to gin up the value of their stocks.

But most executives today continue to receive a large share of compensation in the form of stock, often as restricted grants, and last year were able to take advantage of a second straight year of stock market advances to cash in their gains.

Democrats and deficit hawks cautioned against counting on the elusive gains from the stock market and other one-time windfalls to fund permanent tax cuts and spending increases.

"One should not jump to the conclusion that this spike in revenue will be a recurring event," said Rep. John M. Spratt Jr., South Carolina Democrat and ranking member of the House Budget Committee.

"Policy-makers should not repeat the mistakes of 2001 by allowing improvements in the short-term budget outlook to serve as an excuse to relax already overly lax fiscal discipline," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget.

[Ralph]

It's very instructive to compare this budget with Millard Fillmore's.

[CharmNewton]

It's very instructive to compare this budget with Millard Fillmore's.

How did the government ever survive without the Federal Income Tax?

John

[Ralph]

It's very instructive to compare this budget with Millard Fillmore's.

How did the government ever survive without the Federal Income Tax?

John

*****

Tariffs, mainly.

[Haydnseek]

The deficit is shrinking, thanks to the Bush tax cuts.

Friday, July 15, 2005 12:01 a.m.

http://www.opinionjournal.com/editorial ... =110006973

Let's see if we can get this straight: When tax revenues fall and budget deficits go up, it's bad news. But when tax revenues rise and deficits decline, it's still bad news.

At least that seems to be the way a sizable chunk of Washington is reacting to this week's report from the White House budget office that the federal deficit is down by nearly $100 billion this fiscal year, that the deficit as a share of GDP is down to 2.7% (very near its historical average), and that this is all happening because tax receipts are surging by more than 14%. Uncle Sam is having a better year so far than even Paris Hilton, but half of the Beltway is depressed.

John Spratt, the ranking Democrat on the House Budget Committee, seems especially upset that this revenue surge isn't coming from wage income, but rather from investment income--that is, the so-called non-withholding income tax collections, which have skyrocketed by some 30% this year. "These are typically taxes paid on one-time capital gains, bonuses, stock-options income that may not recur," he laments.

Well, sure, Congressman, the 2003 reductions in the tax rates on dividends and capital gains seem to be resulting in much higher tax revenues on . . . dividends and capital gains. This is called the Laffer Curve effect, and we thank Mr. Spratt for validating it. If he wants those revenues to "recur," maybe he'll even vote to make those tax cuts permanent.

This revenue surge from investment income also rebuts the mantra that the 2003 tax cuts were a giveaway to the rich. Nearly half of all Americans have some kind of stock ownership, and thus have shared in these gains in investment income. And if most of the extra tax income is coming from capital gains and dividend payments, that would have to mean that the rich in America are paying more taxes, not less, as a result of the 2003 tax cut.

By the way, we don't recall Mr. Spratt and other Democrats lamenting when a similar spike in taxes from investment income was boosting tax revenues to historic heights as a share of GDP during the dot-com bubble of the late 1990s, as per the nearby chart. Then it was all said to be an economic miracle; now it's a windfall for the wealthy. This selective budget criticism couldn't be related to who's sitting in the White House, could it?

There is a looming budget problem, but it has nothing to do with the Bush tax cuts or insufficient tax revenue. It is a government spending crisis, especially the liabilities that politicians have promised to retirees in Social Security and Medicare. The Congressional Budget Office predicts that spending as a share of our national output based solely on current promises will surge from about 20% today, to 25% in 2025 and to 34% by 2040.

In order to balance the budget at those spending totals, we would have to double the highest income tax rate to 70%, raise payroll taxes to 30%, and the corporate income tax rate would rise to twice the average of U.S. trading partners. Or if we tried to borrow to finance all this spending, our debt ratings would slip to junk bond status, according to an analysis by Standard and Poor's.

Republicans share a hefty part of the blame for creating the most fiscally unaffordable new spending program in the past quarter century: the Medicare prescription drug bill, with an unfunded liability that is larger than the GDP of every other country in the world.

But the "deficit hawk" Democrats have been equally disingenuous. Most Democrats who voted against President Bush's prescription drug bill did so because the multi-trillion- dollar plan wasn't generous enough to seniors. They have also rejected every overture by Mr. Bush to shore up Social Security's long-term finances, even a proposal to trim future benefits for wealthier retirees. Every White House proposal to cut spending in this year's budget--agriculture subsidies to upper income farmers, slight cutbacks in Medicaid payments, reductions in Amtrak subsidies, a decline in pork barrel highway projects--has been rejected by the "deficit hawks" in Congress.

So thank heaven for the tax cuts that have helped to spur the economy that is now throwing off higher tax revenues. As the chart shows, those revenues are now rising back to their modern average as a share of GDP, just as supporters of the tax cuts predicted. And if the tax cuts are made permanent, and as the economy grows and incomes continue to rise, Americans will be paying even more in taxes as they move into higher tax brackets. The real windfall here isn't for the rich but for Washington. Instead of griping, Mr. Spratt ought to be doing cartwheels.

Copyright © 2005 Dow Jones & Company, Inc. All Rights Reserved.

[Corlyss_D]

It's very instructive to compare this budget with Millard Fillmore's.

How did the government ever survive without the Federal Income Tax?

John

*****

Tariffs, mainly.

Have either of you ever run across the Charles Adams' For Good or Evil, on the history of taxes? Despite the boring sounding topic, he tells the story very interestingly. For instance, did you know that the Rosetta Stone was a tax exempt certificate? It became necessary to have one of these placed outside Egyptian temples to ensure that the Greek tax collectors the Ptolomies brought with them would leave them alone. Apparently the Greeks relied on philanthropy to satisfy most public needs, so that when they did levy taxes, they levied them on the temples as well and they meant business. If you didn't pay, they sent goons to break your legs and take what they wanted. The Egyptians on the other hand had rarely taxed their temples - priests were too powerful for that - so taxing the temples was viewed as something of a joke. When the Ptolomies took over Egypt, they brought their no-nonsense tax collecting style to a land that wasn't accustomed to such insistence. After a lot of culture clashing, they worked out an agreement that temples would be exempt and they would display these tax exemption certificates in two Egyptian languages and Greek outside the temple. So if it weren't for taxes, we may still not know what the pictographs meant.

[Barry]

If this turns out to be a long-term trend, rather than a blip, before another increase in the deficit, I'll admit that I was at least partially wrong when I criticized Bush's tax policies; just as I have with some GOP foreign policies. I say partially wrong because if given the choice of balancing the budget with the Clinton approach (targeted, rather than blanket, tax cuts, without the cuts in the top bracket, as well as his priorities in what to spend increased revenues on) versus the Bush approach, my preference is for the former. I've always hated the GOP tax and budget priorities. But if it works (the deficit continues to fall), at least there is a positive off-setting the things I don't like; and a very important positive at that.

As I've said a couple times recently, my ideal president would be like Clinton on most economic and domestic policies, Reagan on foreign policy, and pick a liberal, any liberal, on societal/cultural issues.

[Kevin R]

It's very instructive to compare this budget with Millard Fillmore's.

How did the government ever survive without the Federal Income Tax?

John

*****

Tariffs, mainly.

Have either of you ever run across the Charles Adams' For Good or Evil, on the history of taxes? Despite the boring sounding topic, he tells the story very interestingly. For instance, did you know that the Rosetta Stone was a tax exempt certificate? It became necessary to have one of these placed outside Egyptian temples to ensure that the Greek tax collectors the Ptolomies brought with them would leave them alone. Apparently the Greeks relied on philanthropy to satisfy most public needs, so that when they did levy taxes, they levied them on the temples as well and they meant business. If you didn't pay, they sent goons to break your legs and take what they wanted. The Egyptians on the other hand had rarely taxed their temples - priests were too powerful for that - so taxing the temples was viewed as something of a joke. When the Ptolomies took over Egypt, they brought their no-nonsense tax collecting style to a land that wasn't accustomed to such insistence. After a lot of culture clashing, they worked out an agreement that temples would be exempt and they would display these tax exemption certificates in two Egyptian languages and Greek outside the temple. So if it weren't for taxes, we may still not know what the pictographs meant.

Cor,

The Adams book is an excellent survey of taxes and history.

The recent numbers are indeed good news, again showing how tax reductions stimulate economic growth.

What is really remarkable, however, is how Dems try to spin this (and the overall strong economy in general) as bad news. They simply (just like the 1980s) can't give credit to the prez and his policies. I think this has to do with the fact that most Dems can't escape their class warfare perspectives on this issue. Cutting taxes is simply alien to them. The only proper response on the tax front is to increase them. Transfer money from one segment of the population to another. As an example, see the outrageous observation by Paul Krugman (in the Asia Times): “We should be getting 28% of GDP [gross domestic product] in revenue.” That is right folks, he said 28%!!!!! And some hold him out as a reliable economic source?

[Gregory Kleyn]

"The recent numbers are indeed good news, again showing how tax reductions stimulate economic growth."

Huh?

Interesting how mere associations show a relationship of causality in the minds of true believers.

What else could it be, - right?

The economy grew substantially after Bill Clinton's tax INCREASES as well.

But less than it would have without them I am sure.

[Werner]

We can only greet the improvent we see as a good sign. By the way, I remember a tax reduction under Kennedy. He was a Democrat, wasn't he? Just shows it doesn't pay to bve too partisan - or too pleased with what now seems a change from the previous bad news.

We'll see where it goes from here. But blaming the economic woes on any Government's - Republican or Democrat - efforts to provide for a decent stanard of retirement security, health care, or other provisions for the public weal shows, in my view, a defective view of the obligations of government - not as our masters but our competent servants and administrators.

[Ralph]

I'm lucky-economics is over my head.

[Auntie Lynn]

I've always LOVED Gregory Kleyn's posts - why doesn't he take over the board...? The Gore Vidal of the ether waves...

[Werner]

It seems to me that Corlyss and Lance are doing pretty well.

[Kevin R]

"The recent numbers are indeed good news, again showing how tax reductions stimulate economic growth."

Huh?

Interesting how mere associations show a relationship of causality in the minds of true believers.

What else could it be, - right?

Is there an argument in there somewhere???

The evidence on the economic consequences of tax cuts is pretty clear. Please consult any of the following:

Eric Engen and Jonathan Skinner, “Taxation and economic growth,” National Tax Journal.

Martin Feldstein, "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act." Journal of Political Economy.

Gene Smiley and Richard H. Keehn, “Federal Personal Income Tax Policy in the 1920s,” The Journal of Economic History.

Dale W. Jorgenson and Peter J. Wilcoxen, “The long-run dynamics of fundamental tax reform,” The American Economic Review.

James M. Poterba, "Tax Evasion and Capital Gains Taxation," American Economic Review

The Bush tax cuts have clearly increased revenues. If you have another explanation, please elaborate.

The economy grew substantially after Bill Clinton's tax INCREASES as well.

But less than it would have without them I am sure.

Yet the growth (coming out of a recession) under Bush has been stronger than under Clinton. During the Clinton recovery (keeping in mind that the economy had already started coming around before Bill took office), real GDP expanded by 11%. During the same time period during the Bush recovery, real GDP has grown by 12%.

And you fail to mention a number of important points about the 1990s.

First, as I just pointed out, the economy started growing BEFORE Clinton entered the White House. Does Clinton get credit for this as well?

Second, the economy in Clinton's first four years was a bit sluggish at times, especially when compared to those last 3 and 1/2 years.

Third, one thing that helped the economy was the slowing of government spending. This was tied to the decline in defense spending (which fell from 6.3%, as a % of GDP, in 1986 to 3.2% in 1998).

Fourth, after the GOP captured Congress in 1994, the Republicans sought spending restraints that Clinton often fought. Hillary Care would have broke the bank.

Fifth, the real boom under Clinton (and he was not a bad prez on economic matters) came from a tech explosion and, more importantly, after capital gains were slashed in 1997.

[Ralph]

I've always LOVED Gregory Kleyn's posts - why doesn't he take over the board...? The Gore Vidal of the ether waves...

*****

I wonder if he'll consider that to be a compliment.