A follow-up question for Senator Conrad

Kent Conrad, chairman of the Senate Budget Committee, appeared on CNBC's Kudlow & Co. two days ago.  Conrad is not a fan of the 2001 tax rate cuts, and has this to say about it at his website:

Sadly, the massive 10-year tax cut of 2001, benefiting primarily the wealthiest, left the nation ill-prepared to deal with the economic downturn and war on terrorism that would follow. We now again face deficits as far as the eye can see.

Also at Conrad's website is a notice that the "Senator's Budget Puts Nation on Path to Fiscal Responsibility"—presumably because Conrad's budget supposedly moves into balance in 2012, five years from now. 

In the interview, Larry Kudlow asked Sen. Conrad a good question.  The answer Conrad chose was intriguing.  Here's a snapshot of that segment of the show, followed by the Q&A.

Click to enlarge:

Kudlow: It looks like there’s a decent chance the budget could come into balance next year [2008].  If it ain’t broke, why fix it?

Conrad:  Well, there's no chance it will come into balance next year.  I don't know what numbers you're looking at.

At that point, Kudlow put up a familiar-looking chart.  Click to enlarge [I added the note to the image]:

If revenues continue growing at an annual pace of about 12%, and outlays continue growing at about 6%, it is a mathematical certainty that the budget would balance in 2008.  Those are the numbers many of us have been looking at.

So here's the follow-up question:

Senator, if you found out that the budget would in fact come into balance next year without any help from Congress, what changes would you recommend to your current version of the budget?

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End note:
If the chart above doesn't ring a bell, click on this thumbnail:

Comments

[Counter Revolutionary]

Steve, it is interesting and frightening the reaction we are seeing from the leftist economists. Conrad's there is "NO" way etc. or I hear but thats the "UNIFIED" budget. It will have balanced on the shoulders of the poor working man using the excess FICA.

Either they are in denial or defensive, but it appears they are actually ignorant of what is happening.

I still blame Karl Rove. Growth trumps everything.

[Patrick]

Wow. Coincedence or not you must be thrilled, Steve.

Great motivation to keep up the good work, I hope!

[Ariah]

What was Conrad's reaction? To deny the relevance of the chart?

[Steve]

Ariah:
He said neither the CBO or the OMB is forecasting balance by next year. I guess those offices aren't looking at the rolling-12mo trends, either.

Maybe if they did, it would do some good inside the beltway. [=wishful thinking.]

[Rich Berger]

Steve-

I don't think the Dems will miss a beat when the budget is in balance; they will change the subject. They will want to raise taxes because of all the "unmet" needs out there.

[Syphax]

I have a very hard time believing Democrats would raise taxes("let the tax cuts expire") if the budget was in balance. Its difficult to raise taxes when running a large deficit(like when taxes were raised in the early 90's) let alone raising taxes when the budget is balanced.

[rufus]

The answer is obvious; He'll increase spending. Next!

[Kevin]

I don't know what you're implying Steve -- clearly see that the Kudlow chart uses ENTIRELY different colors for the graph lines, plus -- it has a green NBC logo in the background!

[Counter Revolutionary]

/inserting tongue in cheek Kevin, you are absolutely correct. Those colors and the logo make it obvious that those numbers are probably different too. I bet if we compared the dates the lines cross on each chart they also differ maybe even by as much as a month./removing tongue from cheek/

On a serious note I think there is a good chance the Dems will NOT be able to change spending significantly next year. Vetoes R-us is in the Whitehouse, and it is possible to see another round of continuing resolutions for 08.

Spending on most of the $100B War supplemental will be deferred to 08 because it is already so late in the Fiscal Year.

So to greatly increase spending in 08 will be very difficult. I have been predicting that once the deficit falls below $100B pressure will be too great on both parties to let it creep up. Both parties will be chasing the rabbit of which party brought the deficit under control.

[Sandy P]

Uh, guys??? Via Cap't Ed from the LA Times:

...The new budget resolution, the first to make its way through Congress since Democrats took control, anticipates almost $3 trillion in spending and just under $2.7 trillion in revenue, leaving a projected deficit of about $250 billion. ...

Even better:

UPDATE: And it gets worse. Take a look at page 50 of the Conference Report. The actual size of the budget is $2.965 trillion, which makes the year-on-year increase slightly higher than I said -- but that's not the real problem. Within four years, the Democrats want to push the budget to $3.274 trillion, an increase of 10% over their proposed spending for next year, and an an increase of almost 20% over this year.

It was just ten years ago that the budget was under $2 trillion. It has already grown 35% in ten years. By the time 2012 rolls around, it will have increased 44% in the previous ten-year cycle under this plan.

[Steve]

Sandy P:
The good news is, it takes a big change in spending or revenues to bend a rolling-12mo trend line in a different direction. Twelve rolling-12 data points have a lot of momentum.

The bad news is, Congress is able to screw up the trend if it so desires. That's why I'm not ready to call the trend a "forecast" yet; maybe in six or eight months, if the direction holds.

[Boghie]

Steve,

Why do all these Libs look at CBO Budget projections?

I got into a running battle with a reasonable Center Lefty - but could never get him off his information store. He kept using the CBO projections for FY2006 even though the actual MTS numbers for FY2006 were completed. We are talking about mid-November 2006. He was projecting an excess of $420 Billion in deficit when the final numbers were out - namely we ran a $248 Billion deficit.

Wierd, very wierd...

And, then they whine about the 'off budget' supplimentals and can't quite figure out that the MTS numbers take that into account.

Uuuuuggggggghhhhhhhhhhhhhh....

It will be very hard to increase taxes when there is no deficit to fund...

[ken]

I know that Kudlow has always been a pro-growth supply sider. I bet right now he feels vindicated.

It always amazes me that people like Sen. Conrad have enough smarts to get elected, yet lack virtually any sense in economic matters. How many times does someone have to be spectacularly wrong?