Deficits 101

Deficit To Be Largest Ever, CBO Predicts

WASHINGTON (AP). . . According to the budget analysis, the federal deficit has reached an estimated $202 billion for the first seven months of the government's budget year, which began last Oct. 1. For the same six months last year, the deficit was $65 billion.

"CBO [Congressional Budget Office] now expects that the government will end 2003 with a deficit of over $300 billion," said the report, which was dated last Friday.

The budget office's figures do not reflect the tax bills Congress is debating. The House version, which would cost $550 billion through 2013, is expected to add $60 billion to this year's shortfall. The Senate's smaller $350 billion measure would deepen this year's deficit by an estimated $44 billion.

Some private analysts have an even bleaker view of the budget, with some envisioning red ink this year totaling $425 billion. The budget office forecast a $246 billion deficit for this year in March, before added defense spending was approved by Congress.

. . . Overall, revenue collections through April were an estimated $1.055 trillion, or $62 billion lower than a year earlier.

The government has spent $1.257 trillion through April, or $76 billion more than in 2002, with defense, Social Security and Medicare expenditures leading the way. The budget office said it expects defense spending to grow by 20% over last year's levels.

The highest deficit ever was $290 billion in 1992. But because the U.S. economy is much larger today than it was then, Republicans argue that today's projected shortfall will have less of an impact.

. . . Democrats plan to use that debate to argue that Bush's tax cuts - including a major one in 2001 - have caused the government's red ink problems. Republicans blame the weak economy and the costs of war and battling terrorism.

http://www.usatoday.com/news/washington/2003-05-12-deficit_x.htm

GeorgeWBush.com

Deficits matter and are rarely welcome--but some are necessary to keep America strong. The federal budget returned to deficit primarily because of the effects of the recession that started in 2000, the shocks of September 11th, corporate scandals, and the need to fight the war on terrorism and defend the Homeland.

Tax relief did not cause the deficit. We would have had deficits even if there had not been tax relief in 2001. In fact, the 2001 tax relief was perfectly timed to help sustain the economy, making the recession one of history's shortest and shallowest.

The deficit today at 3 percent of GDP is manageable and modest by historical comparison. Long-term interest rates have dropped to 40 year lows and interest on the debt is very low.

The President's budget restrains wasteful spending, holding the overall increase in government spending to just 4 percent because the President believes the federal government should not grow any faster than the paychecks of American families.
http://www.georgewbush.com/News/Read.aspx?ID=1849

JohnKerry.com:

"In a blink of history's eye, trillions in budget surpluses have been transformed into trillions in deficits over the next decade," Kerry said. "From missions to Mars to tax cuts for the wealthy to a Medicare bill that benefits drug companies and burdens seniors, the Bush administration has failed to pay for what it has proposed."

To repair the damage done by George Bush's failed economic policies, Kerry today pledged to restore fiscal discipline in the White House with a budget based on three principles: middle-class tax cuts, restoring "pay-as-you-go" rules and restraining spending growth, and closing corporate tax loopholes to cut the deficit. . . .

In contrast to George Bush's $6 trillion spending spree, Kerry will return the federal government to the principle of paying for new initiatives without increasing the deficit. Known as "pay-as-you-go," these common-sense budget rules were instrumental in creating the economic growth of the 1990s but were quickly abandoned by the Bush administration. In addition to reintroducing "pay-as-you-go," Kerry will take steps to ensure discretionary spending - excluding defense and homeland security - does not grow any faster than inflation.

http://www.johnkerry.com/pressroom/releases/pr_2004_0407a.html

. . . and spenders

Frustrated taxpayers dutifully completing their 1040s frequently ask themselves an understandable question: Where is all this money going? And they deserve an answer.

The federal government is projected to spend $21,671 per household in 2004 - the most since World War II and $3,500 more than in 2001. Tax revenues will reach $16,981 per household through a combination of the income tax, payroll tax, gas tax, estate tax and assorted business taxes typically passed on through higher prices and smaller investment returns. The remaining $4,690 represents the deficit per household, which will be dumped in the laps of our children.

Here is a breakdown of where that $21,671 goes:

•  Social Security and Medicare: $7,165. The 15.3 percent payroll tax, split evenly between the employer and employee, covers most of these costs. Contrary to popular belief, individuals' contributions are not set aside for their own retirement, but used to fund the benefits of current retirees. Although there were once 15 workers per retiree, the retirement of the Baby Boomers will leave only two workers to fund the benefits of each retiree. By 2030, the added costs of that burden are projected to reach what, in today's economy, would be $5,200 per household. In 2050, that additional tax would climb to $13,500 per household. The unpredictable costs of the new Medicare drug benefit could add thousands more to each household's tax bill.
• Defense: $4,240. The defense budget covers everything from military salaries, to operations in Iraq and Afghanistan, to the research, development and acquisition of new technologies. Lawmakers drastically cut defense spending throughout the 1990s. The September 11 attacks reversed this trend, and the $1,300 per household increase since 2001 has returned defense spending to its historical levels.
• Low-income programs: $3,479. Nearly half of this spending subsidizes state Medicaid programs that provide health services to poor families. In line with economy wide health-care trends, Medicaid costs are rising 10 percent per year. Other low-income spending includes: Temporary Assistance for Needy Families (TANF), food stamps, housing subsidies, child-care subsidies, Supplemental Security Income (SSI), and low-income tax credits.
• Interest on the federal debt: $1,460. Washington is $7 trillion in debt. It owes $4 trillion to the public that owns its bonds and the rest to other federal agencies. Record-low interest rates have reduced the interest payments by $1,000 per household over the last six years. As interest rates climb back to normal levels, so will these costs to taxpayers.
• Federal employee retirement benefits: $835. This funds the retirement and disability benefits of federal employees, including the military. Interest from federal trust funds covers part of this spending.
• Health research and regulation: $619. Health-research spending has doubled since 1998, and nearly all of that spending growth has been concentrated in the National Institute of Health. This category also includes the Food and Drug Administration and dozens of grant programs for health providers.
• Education: $583. Primarily a state and local function, 8 percent of education spending comes from Washington. Federal education spending has surged 76 percent since the 2001 enactment of the No Child Left Behind Act. Most federal dollars go to low-income school districts, special education, and college student financial aid.
• Veterans benefits: $565. The federal government provides income and health benefits to veterans. Spending is up 34 percent since 2001.
• Unemployment benefits: $451. Unemployment costs fluctuate based on the number of unemployed Americans. Recent costs have ranged between $220 per household in 2000 (when unemployment was low) and $526 per household in 2003 (when unemployment was higher). This year, unemployment costs are decreasing as job growth continues.
• Highways and mass transit: $400. Most highway and mass transit spending is financed by the 18.4 cent per-gallon federal gas tax. Per-household costs have increased from $254 in 1998 to $400 this year, and the current highway reauthorization bill in Congress would boost them substantially.
• Justice administration: $389. Justice spending includes federal attorneys and prisons, as well as law enforcement grant programs. New homeland security costs have added $100 per household to justice spending.
• International affairs: $320. This includes foreign economic and military assistance, operation of U.S. Embassies abroad, and contributions to organizations such as the United Nations. International spending has doubled since the terrorist attacks of September 11, 2001.

The programs listed above cover $20,506 per household. The remaining $1,165 is allocated to all other federal programs, including farm subsidies, environmental programs, space exploration, air transportation and community development.

Taxpayers themselves will have to answer a final question: Are they getting their money's worth?

Brian Riedl, "Commentary," The Washington Times, April 14, 2004
http://www.washingtontimes.com/commentary/20040413-090258-4884r.htm