...just in time for the presidential campaign?
That's the current trend, I kid you not. Neither party's "help" appears to be needed, either: no spending cuts, no tax rate hikes, thank you very much.
Today I added October's federal receipts and outlays (from the Oct 2005 Monthly Treasury Statement) to the trend chart I started several weeks ago, back when the bunchball crowd of politicians and journalists piled onto the how-to-pay-for-Katrina story. (Note: "Bunchball" is how 4-year-olds play soccer: Bunch of kids around ball; ball pops out; bunch re-surrounds ball; repeat until time runs out. It’s cute; but, again, it’s for 4-year-olds.)
The two trend lines, receipts and outlays, confirm what I thought I had seen two months ago. Federal tax receipts are growing much faster than federal spending outlays: 15.2% versus 8.5%, respectively.
Click to enlarge.
Implications
If we can manage not to screw up the economy's growth trend, the bunchball crowd will have to drop the deficit and find a different economic topic to flog, starting mid-2008—because that's when federal tax receipts would surpass federal outlays if current trends continue. In other words, the budget would come into balance at the yellow star on the chart above. (By the way, a permanent deficit of 2% GDP in this growth climate would be just about right for maintaining a steady, nonincreasing debt-to-GDP ratio; we don't need, and shouldn't want, to go all the way to balance.)
The trend in tax receipts on this chart illustrates the power of a growing economy: tax receipts grow because more people are creating jobs, more people are working, and taxable incomes are rising. That's what is happening today, and that's what we should want to sustain.
I hope some of our politicians take a look at this chart, because the economy looks like it's "fixing" the deficit without their help. In fact, for what it’s worth, here’s my advice...
• ...to the Republicans: Don’t waste political capital by trying to cut spending on social programs; the deficit is coming down nicely without any unpopular cuts. Instead, shift your focus to more effective management of current spending on national security (intelligence, diplomacy, and military force potential).
And...
• ...to the Democrats: Don’t waste political capital by trying to increase tax rates; the deficit is coming down nicely without any unpopular tax rate hikes. Instead, shift your focus to more effective management of current spending on national security (intelligence, diplomacy, and military force potential).
If I sound like a broken record, it’s on purpose. Battles over phony problems like the (shrinking) deficit are taking precious time away from real problems in the national security arena. The money will take care of itself—if our leaders would only work on improving what we get for the money.
