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

Pages

iVillage Member
Registered: 03-26-2003
Sat, 02-07-2004 - 4:07pm
Interesting article.

I know one thing from observing many of my friends and colleagues (and my own habits).....people tend to spend far in excess of what they make.

There was an interesting study done about 9 or 10 years ago about the modern millionaires, who made their own money. At the time, the most popular car owned by these new millionaires was a pre-owned Ford Taurus. The average price of their homes......$835,000. I guess that is why they were millionaires....they spent their money wisely.

I am not saying everyone does this, but our society today is a society of excess.....we all have to keep up with our friends, and need to drive that nice new car, or have that great new PDH....etc (you know what I mean). I bet that would account for a decent percentage of the people filing for bankruptcy.

iVillage Member
Registered: 04-16-2003
Sun, 02-08-2004 - 10:12am
<>

I think this is obvious. However, these families are living a middle class dream. That is the entire problem, they really aren't middle-classs. This tells me that the middle class is shrinking.

<>

What is driving this is the school district; young families don't want to live where their children aren't safe. Good school districts often have more expensive houses. This is no longer the 70s; times have changed. In the 70s we had a large house on 1/2 acre of land on Maui, two cars and three children on one income. My children all have college educations and have are struggling to be to provide their children with that kind of life. Perhaps they should recognize that they aren't in the middle class anymore.

>"Every 15 seconds an American family files for bankruptcy."< That figure is outrageous.>>

I agree it is outrageous. People put essentials on a CC because they don't have the cash, then their debt escalates. This happened to my step-daughter who had extensive medical bills for her son. Fortunately, we were in a position to help them out--otherwise they may never have gotten out of debt. The primary point here is that the middle class, in trying to maintain their live style, are getting into CC debt with it's outrageous interests, and thus CC debt falls more heavily on the middle class.

Wages haven't kept up with essential costs: food, clothing, housing, schooling and most notably medical.

iVillage Member
Registered: 04-16-2003
Sun, 02-08-2004 - 10:18am
I do not disagree with anything you say. I have long believed that CCs are a trap that our society encourages. Once trapped it is hard to dig your way out. I too have CCs but I always pay them off without incurring interest. A useful tool is you use them correctly. Unfortunately, many don't learn this lesson until they are paying 18% interest. This is one of the ails of American society today--credit is too easy to get.
iVillage Member
Registered: 03-26-2003
Sun, 02-08-2004 - 12:20pm
<< too have CCs but I always pay them off without incurring interest. A useful tool is you use them correctly. Unfortunately, many don't learn this lesson until they are paying 18% interest. This is one of the ails of American society today--credit is too easy to get.


I could not agree more.

If I do carry a balance, it is generally only for one additional month so as not to totally deplete what I call my emergency reserve.

iVillage Member
Registered: 04-16-2003
Wed, 02-18-2004 - 12:12pm
To all.

Is Bush sincere?

Bush budget clearly tailored for election year

The centerpiece of the Bush Administration's fiscal policy is a pledge to cut the budget deficit in half by 2009. To make this a serious possibility, the budget would need a politically unappetizing combination of tax increases and spending cuts. At the same time, election-year politics are driving many of the budget decisions. The result is a pattern in the budget numbers where the appearance of increases is contradicted by the reality of the long-term budget averages. In particular, the administration asks for immediate increases in politically sensitive spending, while at the same time reducing subsequent spending that undercuts its commitments for 2005.

The figure shows selected areas where spending increases proposed by President Bush for the coming fiscal year 2005 are followed by slowdowns or reversals in spending growth. For instance, the Department of Veterans Affairs increases by more than 11% in 2005, but by an annual average of less than 3% from 2006 through 2009. The implied fall in education spending after 2005 is especially troubling in light of the burgeoning cost to the states of implementing the "No Child Left Behind" education guidelines.

The contrast between proposed spending growth in 2005 and the years that follow points to several problems. Under any circumstances, it would make more sense to have a smooth rate of increase in any given area. But even more problematic is that after 2005 the slow rates of increase—and in some cases, decreases—are unrealistic and exaggerate likely budget savings and deficit reduction.

Source: EPI analysis of The Budget of the U.S. Government, FY2005.

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

iVillage Member
Registered: 04-16-2003
Wed, 02-18-2004 - 12:13pm
February 18, 2004

Squeezing the Poor for Votes



estructive fine print is showing through the budgetary bandwagon President Bush has designed for his re-election drive. It turns out that hundreds of thousands of poor and low-income families will lose child care and housing assistance if the administration's ballyhooed spending cuts take effect. In trying to campaign as a late-blooming fiscal disciplinarian, the president is making a show of marking 128 programs — count 'em, G.O.P. budget hawks, 128 — for elimination or cutbacks in many vital social service areas. As if they are at the heart of the administration's rolling deficits, which threaten the nation's economic future.

The savings from the draconian budget theatrics would total no more than $4.9 billion. This is less than 1 percent of the record $521 billion deficit Mr. Bush helped create with tax cuts weighted toward the affluent (whose top 1 percent will net a $45 billion boon in this year alone). The real costs of such shabby budget politics would affect programs like housing vouchers. These would be cut $1.7 billion below what's needed to maintain the two million people getting help. Depending on localities' responses, this cut could mean the denial of vouchers to 250,000 of the impoverished, elderly and disabled.

Likewise, after all the bipartisan dedication to steering people from welfare to workfare, the White House would demonstrate election-year toughness by cutting child care aid for the working poor, who need it most. The proposed cuts would mean a minimal drop of 200,000, and probably 365,000, in the number of children receiving child care aid in the next five years. In cutting these indispensable programs, Mr. Bush is trying to tell voters that down is up — that the deficit problem is rooted on the ledger's spending side, not the revenue side, which he has systematically choked by trillions across the decade. Government data actually indicates that spending as a share of the economy has not rocketed and remains relatively low, while the Bush tax cuts increasingly drive the grim deficit outlook.

Congress should be the first to recognize and dismiss the president's budget as an arrant campaign pamphlet. It would leave profligate Republicans picking on the poor in a desperate attempt to stand for fiscal responsibility.

http://www.nytimes.com/2004/02/18/opinion/18WED2.html


iVillage Member
Registered: 03-26-2003
Wed, 02-18-2004 - 2:45pm
Nah...he just used the same government accountants that every other administration has used over the years.... you know...the one that the calculators always come up with the numbers that they want....LOL

I have never trusted the government (no matter who is in charge of the White House) when it has come to the numbers they put out for their budget, as something always comes up, and they need more money for this, and more for that...etc.

I guess this is why I support the tax cuts, because at least I know where my money is going...

Pages