The
Center for Budget and Policy Priorities provides some much needed perspective on the Administration's claims regarding the federal budget deficit. Excerpts:
Administration officials may draw similarly optimistic conclusions from this year’s Mid-Session Review. But while unexpectedly high revenues are good news for the Treasury, the budget and economic picture remains far less rosy than the Administration’s claims suggest, and the tax cuts remain a major contributor to the nation’s serious fiscal problems.
. . .
- There is no evidence of a tax-cut fueled economic boom. Economic data, now available through the first quarter of 2006, show that the current economic expansion remains weaker than the average post-World War II economic recovery, with economic growth falling below — and employment and wage and salary growth falling far below — historical norms. While economic growth has been stronger in the past three years than in the earlier part of the current recovery, the evidence does not support Administration claims that the 2003 tax cuts caused the improvement. The economy’s performance improved at about the same point in the 1990s recovery, and that improvement coincided with tax increases enacted in 1993.
- There is strong evidence that increased income disparities between high-income households and the rest of the population have contributed to the recent revenue gains. High-income taxpayers pay taxes at higher rates. As a result, an increase in the share of the nation’s income that goes to these households leads to an increase in revenues, even if there is no increase in overall economic growth. In its May Monthly Budget Review, the Congressional Budget Office wrote that this year’s stronger-than-expected increases in revenues may be due in part to increased income concentration. This is consistent with other recent evidence of rapidly rising income inequality.
. . .
- Even with higher-than-anticipated revenues this year, budget deficits remain disturbingly large for a mature economic recovery. CBO has suggested that this year’s budget deficit may be around $300 billion. While that is lower than the deficit estimate issued at the start of the year, it still amounts to a deficit equal to 2.3 percent of GDP. That the deficit remains so large this year is particularly disturbing given that the U.S. is now in the fifth year of an economic expansion, and deficits likely will rise when the expansion ends. It is also distressing given the major fiscal challenges the nation will face in the coming decades, as the baby boomers begin to retire in large numbers.
In short, while the Administration is likely to emphasize the improvement in OMB’s revenue estimates since February, the nation’s serious fiscal challenges remain. The recent revenue increases do not materially alter the longer run fiscal outlook. Nor do they change the fact that the Administration and Congress have enacted large tax reductions that have significantly increased the deficit, and that despite these tax cuts, economic growth in the current recovery has been unexceptional.Much more at the
link.
Printer-friendly format
Email this thread to a friend
Bookmark this thread
(1000+ posts)
Send PM |
Profile |
Ignore
