In his speech today Bush once again called for an extension of his ill-advised tax cuts. As outlined below, this will create a massive deficit by 2015 according to this CBO analysis. I posted this several months ago, but it is of vital importance that we deal with this issue realistically. That usually means not doing anything proposed by the idiots who develop Republican economic policy
The Congressional Budget Office released its budget outlook for the years 2007-2014. The full report is available on their website here. Its full of some very interest facts and snippets which I will detail below.
The Congressional Budget Office projects that if current laws and polices remained the same, the federal government would sun a deficit of $337 in 2006. The baseline deficit for this year would be somewhat larger than the deficit of $318 billion in 2005, but it would be roughly the same relative to the size of the nation's economy.
This is what the CBO calls a "baseline budget". It is the number used as comparison when looking at the actual numbers come out throughout 2006. As the report states "Such a pattern is not a forecast of future outcomes but rather a neutral benchmark that describes the path of the budget if present laws and policies remain unchanged." The Bush administration has projected a deficit of $400 billion. Most likely, the administration is once again over-estimating its projected deficit to claim a fiscal victory when the number comes in below their projected figure.
Because of the statutory rules that government the CBO's budget projections, the current baseline omits a significant amount of spending that is likely to occur this year to finance military activities in Iraq and Afghanistan and to pay flood insurance claims resulting from Hurricane Katrina. Additional outlays for such proposals are expected to total between $20 and $25 billion.
The White House has continually used a special appropriations process to finance the war. This means that instead of budgeting for these expenditures in the budget it presents to Congress, the administration will offer a bill especially earmarked for military spending sometime during the year. (The CBO later refers to the Bush administration's planning for military expenditures as "irregular".)
The revenue section of the CBO report is very interesting because it completely refutes the supply-side claim that "tax cuts pay for themselves." First, current history shows that individual income tax receipts totaled 994 billion in 2001 and 927 in 2005. (over the same time, the Republican's discretionary spending increased 48%.) In addition, a chart on page 81 of the CBO report indicates that individual revenue as a percentage of GDP dropped from a little over 10% to 7% over the last 5 years.
Many of the expiring provisions that will expire as scheduled has a significant impact of CBO's projections. Many of the expiring provisions were extended many years ago but are routinely extended, and most reduce receipts. Others that were instituted within the past few years also act to reduce revenues their expiration implies substantial increase in taxes over the projection period.
The CBO is projecting deficits until 2012, when the US budget will have a surplus. What's interesting about this projection is Bush's tax cuts expire in 2010, implying that GDP growth and the resulting increase in tax revenue will not in and of itself reduce the deficit.
About half of the projected increase in individual receipts that occurs over the 2006-2007 period results from the scheduled changes in tax law....Revenues are projected to climb sharply in 2011 and 2012, growing by 8.9% and 7.6%, respectively (under the assumption that various tax increases occur as scheduled.
If all of the tax provisions that are scheduled to expire were extended together, the revenue projection for 2006 would be about 11.5 billion lower. That revenue loss would grow to 57 billion in 2007 and to 106 billion in 2010, before jumping to 254 billion in 2011 and then reaching 455 billion in 2016. For the entire 2007-2016 period, projected revenues would be reduced by about 2.64 trillion.
In other words, if Congress extends the tax cuts, the US will not have a balanced budget for 2012 and onward.
[I]f all of the tax provisions that are set to expire over the next 10 years were extended, the budget outlook for 2016 would change from a surplus of $67 billion to a deficit of $584 billion".
One of the primary reasons for the length of the 1990s economic expansion was the stable condition of US finances. There were no comments from other world leaders telling the US to get its fiscal house in order because we already were. Market participants saw a federal government balance three budgets in a row. This increases the stability of a nation's finances, which is beneficial to all involved in the economy.
This is no longer the case. Bush is fiscally reckless, living in economic fantasyland where if you say something often enough it is true. This behavior is reckless and dangerous. And we must do everything in our collective power to move the country back to fiscal sanity before it is too late.
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