Another Bogus Budget

iVillage Member
Registered: 04-16-2003
Another Bogus Budget
27
Tue, 02-03-2004 - 2:51pm
Another Bogus Budget

By PAUL KRUGMAN



ell, whaddya know. Even as the Republican leadership strong-armed the Medicare drug bill through Congress, the administration was sitting on estimates showing that the plan would cost at least $134 billion more than it let on. But let's not make too much of the incident. After all, it's not as if our leaders make a habit of faking their budget projections. Oh, wait.

The budget released yesterday, which projects a $521 billion deficit for fiscal 2004, is no more credible than its predecessors. When the administration promises much lower deficits in future years, remember this: two years ago it projected a fiscal 2004 deficit of only $14 billion. What's new this time is that the administration has decided to pay lip service to conservative complaints about runaway spending.

Over the past few months, many pundits have obediently placed the onus for rising deficits on "a vast increase in discretionary domestic spending," or words to that effect. By the way, the Heritage Foundation, which has orchestrated this campaign, is cagier than those pundits; it covers itself by relying on innuendo, never saying outright that domestic discretionary spending is the source of the deficit.

To mollify these critics, the new budget purports to shrink real domestic discretionary spending. This won't happen; even if it did, it would have a negligible impact on the deficit. But it isn't just a fake solution — it's a response to a fake problem.

The prime cause of giant budget deficits is a plunge in the federal government's tax take, which fell from 20.9 percent of G.D.P. in fiscal 2000 to a projected 15.7 percent this year, the lowest share since 1950. About 45 percent of this plunge can be attributed to the Bush tax cuts. The rest reflects the end of the stock market bubble, the still-depressed economy and — probably — growing tax sheltering and evasion.

It's true that increased spending also contributes to the deficit, and that there has been a substantial increase in discretionary spending — spending that, unlike such items as Social Security payments, isn't automatically determined by formulas. But the bulk of this increase has been related to national security.

Traditional budget measures distinguish between defense and nondefense discretionary spending. Even by these measures, defense accounts for most of the increase in recent years. But a better measure would group homeland security and other costs associated with 9/11 with defense, not domestic programs. The Center for American Progress — confirming related work by the Center on Budget and Policy Priorities — estimates that from 2000 to 2004 security-related discretionary spending rose to 4.7 percent of G.D.P. from 3.4 percent, while nonsecurity spending rose to only 3.4 percent from 3.1 percent.

In other words, the role of nonsecurity spending in the plunge into deficit is trivial, compared with tax cuts and security spending. (Credit where credit is due: the administration's budget numbers show the same thing.) And even severe austerity on nonsecurity spending won't make a significant dent in the deficit.

So what will it take to get the budget deficit under control? Unless Social Security and Medicare are drastically cut — which is, of course, what the right wants — any solution has to include a major increase in revenue.

Many Democrats have called for a partial rollback of the Bush tax cuts, preserving the "middle class" cuts — those that convey at least some benefit to the 77 percent of taxpayers in the 15 percent tax bracket or below. Such a partial rollback would have reduced this year's budget deficit by about $180 billion; that would help, but one hopes politicians realize that it's not enough.

Another major source of revenue could be a crackdown on tax loopholes and tax evasion, which has reached epidemic proportions. In particular, what's going on with the tax on corporate profits? That source of revenue is down, as a percent of G.D.P., to 1930's levels. No, that's not a misprint. And receipts are not growing nearly as fast as one would expect, given an economic recovery that has bypassed workers but given big gains to their employers. An administration that actually tried to make corporations pay their taxes might be able to find $100 billion or more each year.

An eventual budget solution will involve all this, and more. But the first step is to stop looking for villains in all the wrong places.

http://www.nytimes.com/2004/02/03/opinion/03KRUG.html

iVillage Member
Registered: 03-26-2003
Thu, 02-05-2004 - 3:09pm
Neither have I.

If I am able to work out percentages, I will post them.

I just think that all people are overtaxed, and the government needs to do this because of the vast waste in Washington.

I dont know if you saw my idea for reducing the payroll taxes while at the same time doing away with the ceiling at which you stop paying the Soc Security portion.

I cant remember which thread it is on, but if you find it, I would love your input in my idea.

iVillage Member
Registered: 03-26-2003
Thu, 02-05-2004 - 3:11pm
Supply side economics has worked in the past, but that was also before all of the manufacturing jobs were being farmed out offshore.

I think it will still work but in a different way.

I also feel that now that a majority of the war has been paid for, Bush should look over his budget again, and perhaps find some more areas in which to cut.

I know he promised to cut the defecit in half in 5 years, but I would rather see this done in 2 or 3.

iVillage Member
Registered: 03-18-2000
Thu, 02-05-2004 - 11:05pm

>"I dont know if you saw my idea for reducing the payroll taxes while at the same time doing away with the ceiling at which you stop paying the Soc Security portion.

I cant remember which thread it is on, but if you find it, I would love your input in my idea."<


I remember us discussing this. I think it might be in this thread..............


http://messageboards.ivillage.com/iv-elinthenews/message.asp?webtag=iv-elinthenews&msg=5586.1

cl-Libraone





 


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iVillage Member
Registered: 04-16-2003
Fri, 02-06-2004 - 10:41am
<>

You are smart and brave. I thought about, but what portion of the GDP can be allocated to wages. Don't forget corporations and their allowances and loopholes. Would love to see your results.

<>

I do remember you suggested a flat tax, and I to think this is something to be considered. Mainly I think closing loopholes in the tax laws would make taxes more equitable. As for social security, perhaps that would be more equitable, as would stop paying our SS to people who have sufficient money. (lets not try to define what sufficient is).

<>

We are in agreement. I have been concerned about the Pentagon's accounting practices and their ability to account for $$. Also pork needs to be trimmed, but how to you force politicians to abandon their pet projects. A rain forrest in Iowa is absolute insanity.







iVillage Member
Registered: 04-16-2003
Fri, 02-06-2004 - 10:54am
<>

I would disagree, but because of greed. And yes globalization has played havoc with economic theories. What I see is a growing power to corporations and a shift of dollars to the wealthy. I recently saw that this years sales increase was because stores that catered to the rich did great, but lower end stores had a slight loss. I expect to see more of this. But these are predictions and my crystal ball isn't all that clear.

>>I also feel that now that a majority of the war has been paid for>>

Bush didn't even include Iraq and Afghanistan in the budget. I haven't seen any news that America will be leaving Iraq or Afghanistan anytime soon. Because money has been allocated doesn't mean it's been spent. I read a op-ed yesterday about pentagon spending going for a war with another super-power,e.g., star-wars that doesn't work, airplains for dog fights at super-sonic speed rather. Think if we really need a realistic budget to fight the problems we have, not imaginary ones. Here again it is pet projects that rule.

<>

I see this as a pipe dream. Even if he increased taxes he would have to cut spending more, to make up for the deficits for the last 4 years. Remember the surplus was just a projection not an actuality.

iVillage Member
Registered: 04-16-2003
Fri, 02-06-2004 - 11:17am
<>

As a follow up to this statement appear is a excerpts from Bob Herbert's op-ed column.

http://www.nytimes.com/2004/02/06/opinion/06HERB.html.

“The Bush tax cuts and the turnaround in the economy have been a boon to folks at the high end of the economic ladder. The Wall Street Journal ran an article on Wednesday about the resurgence of lavish spending by the investment crowd. It featured accounts of giddy highfliers getting married at the palace of Versailles, stepping up their purchases of Porsches, Lamborghinis and Rolls-Royces, and exhibiting "a renewed appetite for chartered jets."

“At the same time, the underclass and the middle class are increasingly facing similar predicaments: job losses, hard times and an extremely uncertain future.

"The blows are coming from myriad directions. On Tuesday The Times's Milt Freudenheim wrote: "Employers have unleashed a new wave of cutbacks in company-paid health benefits for retirees, with a growing number of companies saying that retirees can retain coverage only if they are willing to bear the full cost themselves."


iVillage Member
Registered: 03-26-2003
Fri, 02-06-2004 - 12:37pm
<< Remember the surplus was just a projection not an actuality.

Exactly, especially after the economy went into the can..... That is the problem with projections...too much speculation and too much room for error.

On a good note however, it seems as though there is some good signs from the economy.

http://www.msnbc.msn.com/id/4191108/

I only hope that the job market continues to grow. Even if it is at a slower pace than analysts would like. I dont know how they can predict how many jobs are going to be created every month, but I am sure that it is such a complex formula, that I could not even begin to comprehend. Also, how do they know that the information is factual???? Does someone go around to everyone and physically count who is working, and who is not?

Being an analyst is a job that I am glad I do not have.

iVillage Member
Registered: 03-18-2000
Fri, 02-06-2004 - 12:46pm

>"I only hope that the job market continues to grow."<


Looks as though the job

 


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iVillage Member
Registered: 04-16-2003
Sat, 02-07-2004 - 9:31am
I agree the economy seems to be picking up speed. Long ago I gave up relying on the unemployment numbers. Jobs did increase at a good pace last month better than the 1,000 in December. I'm too optimistic as yet.

http://www.epinet.org/content.cfm/webfeatures_econindicators_jobspict

Here's a URL about the middle-class squeeze. Many people are in distress.

http://www.pbs.org/now/politics/middleclassmyths.html

iVillage Member
Registered: 03-18-2000
Sat, 02-07-2004 - 12:12pm

Ref. the PBS link. It looks to me as though some of these two income middle class families are living beyond their means, paycheque to paycheque. Instead of living more modestly & having a financial cushion for hard times.


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