The Deficit Hoax

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Pres. Bush said yesterday, that we are making real progress on the deficit. "We" in this context meant Republicans under his leadership, and "progress": well, I will get to the meaning of progress in a moment. First, here are some facts: some of which, were stretched and absent in Republican's touting their great economy and deficit reduction yesterday.

One fact was straightforward and honest. Our economy is seeing job growth. This fact is not surprising in light of the fact that we have been rebounding from a worldwide recession, and job growth has been rebounding across the globe. That is not to say that corporate tax cuts which, lowered the cost of doing business, did not help create jobs. They did. Whenever businesses see increased consumer demand, as when we are coming out of a recession, and lowered costs of doing business, jobs will be created.

A close look at where the increased federal revenues are coming from, demonstrate this. A good percentage of the additional revenue growth came from corporations, many of which have been experiencing record profit levels. But by twice that amount, was increased revenue from individual and payroll withholding taxes. This of course, would reflect many more persons acquiring jobs than during the recession of 2001 top 2003, and Katrina's high unemployment impact. But, it also reflects in another category of revenue called simply enough, "Other", revenues from new self-employed small businesses started by those who couldn't find jobs, and small partnerships, among other unidentified sources. Finally, it must be noted that individual taxes rose in part due to the expanded wealth of the already fairly well off investor classes, especially those invested in commodities and real estate.

OK, we have more jobholders, the wealthy are wealthier, corporations have higher profitability, and more self-employed businesses started up, all of which contributed to higher revenues. Now how does all this tie into Pres. Bush's boasting of newfound fiscal responsibility in reducing deficits? Well, to answer that, we have to look at the other side of the boast. The White House and OMB projected some time ago higher deficits for this period of 2006, than we have experienced. Partly this is due to unanticipated revenue growth. What the White House is boasting about is the actual deficit for this year coming in lower than its previously inflated projections. But, the deficit is still a record deficit. Its kind of a son storming out of the house saying he is going to destroy the family car, and returning home and saying Dad, Mom, the good news is, when I ran the car into the tree, I didn't total it. A few thousand bucks will fix it up just fine.

The fiscal record of this administration and Congress over the last 5 years has been so abyssmal, that the only way to get good news out of it at election time was to inflate how bad the deficits were going to be, so that it was all but guaranteed that the deficit would be lower than what was projected months before the election. What they don't say is, it is still a record deficit. The White House's OMB inflating of the deficit projection is seen by comparing the White House's projection of deficits (OMB) to Congress's (CBO) which tends to be more accurate. At the beginning of this year, the (CBO) Congressional Budget Office projected a $371 billion deficit, and the White House (OMB) Office of Management and Budget projected $423 billion. This is like the student warning his parents he is going to flunk this semester after his counselor has told him that his grades will be all and C's and D's. Won't his parents love him for salvaging the semester?

Now most Americans, when they hear the deficit has come down, will think, 'Good, Congress and the President are finally controlling spending.' But, they would be wrong. Spending is still setting new records. The deficit came down due to increased revenues. But what did it cost to generate these increased revenues of a couple hundred billion? 2.4 Trillion dollars in lost revenue from the President's tax cuts from 2001 to 2006, according to the Citizens for Tax Justice. (PDF) CTJ reports:

Over ten years, the total cost of the Bush tax cuts has grown to $2.4 trillion, including added interest payments (reflecting the fact that the tax cuts have been financed entirely with borrowed money).

By 2010, when the estate tax is slated to be eliminated, 51 percent of the total tax cuts will go to the best-off one percent of all taxpayers.
This is why the wealthy are now generating more tax revenues; their wealth grew, having received over half of the tax cuts in the first place. But the key here, is that while revenues are up 100's of billions, deficits continue to increase the national debt partially due to the tax cuts canceling out the higher tax revenues, and spending goes on unabated.

In fact, Republicans in Congress are working now to increase the debt ceiling to 9.6 Trillion. Which easily guarantees that the 5.6 trillion national debt left by the Republican Congress when Bill Clinton left office, will double by the time Pres. Bush leaves office. Our children will carry twice the national debt tax burden that we had to carry as a result of national debt. The deficits and growth in the national debt are the measure of fiscal responsibility. The bigger and faster the growth in the national debt, the less fiscal responsibility; and the last 5 years have seen the fastest and biggest growth in the national debt in generations.

One more fact, revenues to the federal government have become very volatile. This means that one quarter's revenues are no predictor of the next quarter's revenues, nor are this year's revenues an accurate predictor of next year's revenues. Also, this is where the great deception in Pres. Bush's and Republicans speeches in the last 48 hours comes in. They are spouting off about how great and wonderful the economy is "today". However, our economy cannot be graded on a 3 month, 6 month, or year snapshot. Our economy today is loaded with obligations far down the road which it either carries, or fails, based on what we do today. Following is an example.

John Q Public is making $45,000 this year. But, he has a mortgage debt of $150,000, a automobile debt of $22,000., and credit card debt of $7,000. Combined, his total annual payments for this debt amount to let's say, $7000 for the mortgage, $4200 for car, and $850 for the credit cards, for a total of $12,050 per year, or almost 25% of his income. Now let's say John Q Public double's his debt over 8 years to $24,100, but his annual salary only increases to $48,000 per year. Is John Q. Public better off or worse off?

The fact is, John Q after doubling his debt will be very near bankruptcy, when you add in all of the other annual costs of living from food and fuel to insurance, medical costs, and taxes. This analogy is actually very accurate as to what is happening to our long-term economic situation. Because in 2014, just 8 years away, our government, on top of already having doubled its national debt, will be adding significant more debt to American tax payers or impoverishing them through spending cuts.

The economic train wreck ahead, beginning in 2014, is Medicare and Social Security. There will be no more Social Security surpluses to make our deficits appear smaller than they really are. And Medicare costs will rise as long as overall, medical cost inflation continues; and there is no end in sight on that front, with dramatic increases in medical care demand taking place with the retirement of the baby boom generation.

And there will be only three ways to deal with the baby boomers retiring in 2014. One is to dramatically increase taxes on workers, another is to cut their benefits and let millions do without medical care or live impoverished which will only increase their need for medical care, and the last is to do a combination of both. That is where the real fiscal irresponsibility of the President and Congress comes in. You see, this year, neither is taking any action to save for tomorrow's need. Quite the opposite, they are spending as if there is no tomorrow. And that kind of reckless fiscal irresponsibility will literally mean there will be no tomorrow for millions of American senior citizens beginning in 2014 and running out to 2065 when the baby boomers are finally all gone.

It is important to bear this in mind in November when you enter the polling booth. Especially if you are one of the baby boomers who is going to be wishing Social Security and Medicare were still around to help you when you retire in the event you outlive your savings or worse, you experience an enormous health care debt, forcing you into bankruptcy in your golden years.

The President and Congress are ignoring the future in order to get votes by saying how great the economy is doing and implying they are being fiscally responsible by showing how deficits went from 423 billion to just under 300 billion. However, the economy and reduction in deficit is only 'great' if they, and you, ignore the future of 50 million American citizens who worked hard all their lives to make this nation great, only to have their dignity denied in retirement and their deaths occur in states of poverty.

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This page contains a single entry by David R. Remer published on July 12, 2006 9:16 AM.

Lieberman for Lieberman was the previous entry in this blog.

Misunderstanding the Poll is the next entry in this blog.

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