Deficit Watch, May 2007

The trends for spending and tax receipts improved versus last month.  At this rate, the budget would balance in April 2008.  Here’s the monthly chart; click to enlarge.

There are three main reasons I’d love to see these trends hold up, in this order:

1.    Partisans on the left would lose the “justification” they’ve touted publicly for tax hikes in 2010; namely, “fixing the deficit.”  If they still wanted to hike taxes, they’d be forced to think up a different reason;

2.    It would happen in time for the party conventions and fall ’08 campaign; tax-hiking politicians would then have a lot of on-camera stuttering to do;

3.    I would win a thousand dollars worth of treasury securities (“national debt”) for my granddaughter’s education fund.   

Any time now, the overwhelming importance of economic growth should be working its way into the so-called "fiscal responsibility" debate, ending the false-dilemma we’ve been saddled with for so long.  At last, it would become a three-way debate: “raise taxes” versus “cut spending” versus “grow the economy.” 

I’m keeping track of the ideas coming from both sides of the presidential race regarding “growing the economy.”  So far, just a few Republicans are the only ones who seem to think it deserves a spot on the talking points list.  I expect the Democrats to wake up sometime soon, however, now that the evidence is near-undeniable. 

Comments

[rufus]

I can't get your chart to enlarge. Is it just me?

[Ken]

I know I may sound cynical but, when has evidence ever had anything to do with politicians. Certainly the late nineties should have proven economic growth = increased revenues.

I agree with your item #2, it will be interesting to see how the rhetoric will change. Will we see a replay of the 2000 race? The return of Gore's "lockbox"?

My guess, on the Republican side, this will put impetus on making the Bush tax cuts permanent (lets hope so). I've got three children and that extra $3000 comes in handy. Something needs to be done with the ATM too, I'm starting to bump up into that territory.

Also one reason for Bush's sorry approval ratings, in addition the Iraq war problem, is the misinformation that we are in some sort of horrible economy. Just look at the poll numbers, something like only 40% approval on the handling of the economy. Yet we are at 4.5% unemployment and 3.5% GDP growth. The trade deficit and federal budget deficit are used to hammer Bush on the economy. It will be nice to see one part of that hammer disappear.

If that's the case, I think its still possible for Bush to head out on a +50% approval rating by the end of 2008, which may give a boost to any Republican candidate.

[Ethyl Added]

How are you going to grow an economy used to growth through unlimited credit?

[SalvatoreM]

The Republicans are their own worst enemy sometime. Markets are up, deficits are down, interests are steady, unemployment is low. All we hear about is global warming, Kyoto, Iraq, trade balance, and stem cell research of all things. Why can't they hire a good PR person to stick it right back to the Couric and William types, I'll never figure out.

[JD]

I remember your arguments on this issue and they are persuasive. Still though I would prefer a good run of surpluses to hopefully encourage further tax reductions and maybe a budget boost to programs such as NASA.

[Nom de Blog]

Ethyl Added,

Not to put too fine a point on it but that is an incredibly ignorant question.

[Dave]

That blue trend line looks sketchy to me -- almost as if it is influenced too much by the last point. Can you do another graph where the lines are completely straight (and not following the points at the lower end of the scale). That would be more convincing for me.

[Counter Revolutionary]

I still think we need to BLAME Rove for this Stealth movement. Someday soon the Dems are going to wake to the fact that we are going to balance the budget. I just hope it isn't too soon.

I expect when we go under $100B the pressure to control spending will be impossible to resist for both parties.

I am still convinced the Dems will take credit for the balanced budget, as they are in control of Congress.

[Ken]

Counter R.,

Drawing a straight line and trying to split the difference between all the data points (just save the chart as a picture and open it in MSPaint) it looks like a balanced budget by May/June 2009.

[PseudoNoise]

Is that the biggest one-month jump in receipts on the graph? Sure looks like it eyeball-wise.

Looks like this is the right source:
http://www.fms.treas.gov/mts/mts0407.txt

That is the biggest jump going back to Oct/Nov in 05 -- up 217k in one month.

Looking at table 3 (outlays & receipts by category), the increases over March came from individual income tax (up 539%), "employment and general retirement (off-budget)" (up 92%) and coporate income taxes (up 32%). Pretty much all other receipts are down.

Seems we hit a one-day income tax record in April:
http://money.cnn.com/2007/04/25/news/economy/bc.usa.treasury.taxes.reut/?postversion=2007042517

[PseudoNoise]

OK, so that's the what, now the why. Here's a guess: high-income individuals who could move taxable events up to TY2006 rather than waiting for TY2007 chose to do so. Maybe because of the Dem sweep in November they foresee higher rates in 07.

Plausible?

[Steve]

rufus: Which browser are you using? It works for me in Firefox and IE.

Ethyl: Please rephrase the question; the word "unlimited" needs clarifying before I'll understand it.

Ken: Iraq has trumped everything else; we need a big change for the better there before the economy will get more airtime.

JD: Why not an immediate budget boost to NASA?

Dave: That last point will remain in the rolling-12 total for eleven more months. I've learned to use the most recent point on a rolling-12 chart as the starting point for the trend line. What makes a bigger difference is how far one goes back to determine the slope of the trend line. For simplicity, I chose 12, but six, or eighteen, might be just as good.

PN: Yes, I heard it was the biggest one-month jump ever (versus year-ago, not just prior month). It's driven by individual income taxes and corporate income taxes. It's due partly to more people working, partly to bracket creep, partly to lower rates making it less lucrative to avoid taxes. For example, lower capital gains rates generate higher capital gains tax receipts because it encourages investors to turn their investments over instead of sitting on them.

[Stephen Reed]

Steve,

I think this is good news. The government is still able to raise a good amount of taxes with better tax rates.

It is amazing to me that once people get the mindset that the Republicans are the "party for the rich" that people will disregard all evidence that the economy is doing well because that just can't be. The little guy can not be doing well, because only the rich can do well when the Republicans are in power. It is a thought that just does not jive with their worldview, so they just can not accept any evidence to the contrary.

[JD]

Steve

Reference NASA. I'd love to see their budget increased now of course. Like I said I've been mostly persuaded by you arguments in relation to deficit spending. Sadly though I doubt that NASA will get a budget increase with the politicos posturing about deficits.

I would like to see a positive budget run. Mostly to lower the debt for purposes of rapid spending surges that might be needed in the future. Part of the current deficit, as one example, can be traced to the lack of military spending during the late 90's. Things such as spare parts, training ammo allocations, etc. were allowed to deteriorate terribly during the second term of El Clintonista. It cost a lot more to come back and fix it later, even if there were no military ops occurring.

Once again I enjoy your site. Economics discussion, in my case at least, are normally a form of birth control:) You do lay it out in a sensible manner which I do appreciate.

[ilsm]

JD,

"can be traced to the lack of military spending during the late 90's."

Exactly what was not spent on what?

Be a little specific.

Did El Clintonista stop them from buying ammunition?

Did El Clintonista stop them from producing the MV 22, F-22, new ships? (tell me your thoughts, I know why they were not bought and it was not stringiness)?

From a micro economic standpoint enlighten me as to how stockpiling is useful.

How come it costs more to do it later when you did not need something then or now?

But you seem to want to send probes into space.

[Patrick]

Well you know a blog is getting popular when a significant number of posts are incoherent.

to Daves point: maybe if you took out the lines between data points and let the trendline stand on its own it would better represent what you are trying to show? just a thought.

Steve said:

" Any time now, the overwhelming importance of economic growth should be working its way into the so-called "fiscal responsibility" debate, ending the false-dilemma we’ve been saddled with for so long. At last, it would become a three-way debate: “raise taxes” versus “cut spending” versus “grow the economy.” "

Im not holding my breath.

[Ken]

My own personal favorite for "spending" the surplus is eliminating the corporate income tax. Its double taxation anyway.

ISTM, that would be a win-win situation for all involved.

[Bob]

Re: NASA

Given our priorities, can anyone tell me what the economic value of NASA is? I can buy in to satellites for defense or intelligence, studying the sun for climate affects, but many of their programs seem to be more of nice to have while tangible benefits elude me.

[Rich Berger]

ilsm-

Since you're new here, you might want to read Steve's prior post about 1990's military spending and the surplus.

http://www.optimist123.com/optimist/2005/02/rethinking_the_.html

[JD]

Bob

My mention of NASA concerned development of capability and infra structure. The concept of the economic and resource exploitation of space is bandied about quite a bit. The problem is that private investment won't take off until there's something to take off from. With the expense and uncertainty of such projects only a government can do the initial groundbreaking. I admit NASA has done poorly over the last three decades but it's the only serious vehicle available.

ilsm

As to your questions. I was one of those fly over country, redneck peons (PSG/1SG) doing the work in the time mentioned. Spare parts, training ammunition, fuel allocations, expendables, funding for training operations, all were reduced. The projects you mentioned were multi decade affairs that survived only because funding was cut in other areas. If you want a yardstick look at the Carter years and look how much time and money it took for that period to be corrected. I endured both. I could wax philosophical about the whole thing but this is not the proper venue for it.

[muirgeo]

Steve there is a reason what you'd like to see come true won't happen. One the American public is smarter then you give them credit for. Two they are actually living the economy. Then three, there is a bigger reason the Republicans are in for a beating in 2008 then just the cruddy economy. People are sick and tired of their dishonesty!

http://tinyurl.com/37bqve

Total Public Debt as of 05/11/2006
$8,357,988,734,259.29

Total Public Debt as of
05/10/2007
$8,817,010,977,746.30

The real debt

$449,022,243,487.01

Debt as portrayed by Steve

$144,900,000,000

Anyone who believes the government will be taking in more then it spends in April 2008 as Steve suggest is a sucker.

And you're the same fricking guys who are quick to RIGHTLY claim that Clinton never had a true surplus.

Does anyone know which great president was responsible for setting up these deceptive "debt" numbers that Steve likes to use?

[Ethyl Added]

"Ethyl: Please rephrase the question; the word "unlimited" needs clarifying before I'll understand it."

The US economy has been dependent on MEW and its affects on consumption for a significant portion of economic growth. That growth is slowing, as steadily declining quarterly growth numbers demonstrate, coinciding with falling housing prices and higher lending standards. Credit contraction is a normal part of the cycle, that's fine.

But how can the US consumer keep on spending without easy credit? How can you grow the economy without dropping the Fed funds rate down to zero? From a politician's point of view I can certainly see why it's a lot easier to blame the Deficit. The alternative seems to be to convince people to actually add value to the economy, instead of believing wealth is just another word for HELOC; to actually get rich off innovation instead of trading asset bubbles. That's a formula for getting voted out of office. The canny politian will use the Deficit as a scapegoat for the upcoming recession.

Nom de Blog: why don't you say something specific so I can call it incredibly ignorant.

[Ken]

"cruddy economy"

ha ha ha ha ha ha ha

[JorgXMcKie]

Well, 'easy credit' is certainly different than 'unlimited credit.' Care to move the goalposts once more?

"People are sick and tired of their dishonesty!" as are some of us on your dishonesty. Disagreement, or reasonable interpretation is hardly the same as dishonesty, not that I'd expect some to recognize it.

[Counter Revolutionary]

muirgeo said: "Does anyone know which great president was responsible for setting up these deceptive "debt" numbers that Steve likes to use?"

I do. Do you? Do your research, it may not be the one you think it is.

[Steve]

muirgeo:
Before placing your ignorance on display again, I'd like to suggest you learn the difference between the general fund deficit and the unified budget deficit. In short, I'd like to suggest an article titled "Deficits for Dummies"; you can find it here:
http://tinyurl.com/2dljs9

Read the article, and do any other research you think is appropriate. Then, if you still think I am being "deceptive," let's handle this via private email, with the understanding that any portion of what transpires can be published openly at any time, by either one of us, as we see fit. I assume you have enough courage to back up your accusation of deception, one-on-one with me; am I assuming too much?

[Counter Revolutionary]

I think muirgeo will go away, ego deflated, for a little while, Steve. BTW, it was Johnson, LBJ, who started using the unified budget. I THINK it was codified under Nixon, but I have not been able to find my reference again.

[Iqbal Latif]

Big deficits but still "why the world invests its entire savings in US?"

And what happens if on the other hand America can't borrow the money from an obstinate world?

It is now said that ''saving is sin and spending is virtue.'' It is so correct, but only for the right kind of nation! I would always suggest that 'don't ever cut your expenditure rather increase the size of your cake.' On general assumptions that the US has taken over $5 trillion from the world, so, as the world saves for the US, Americans spend freely. Today, to keep the US consumption going, that is for the US economy to work, other countries have to remit $180 billion every quarter, which is $2 billion a day, to the US! Otherwise the US economy would go for a six. So will the global economy. The result will be no different if US consumers begin consuming less. The questions being asked is ''Why the world invests its entire savings in US? And what happens if on the other hand America can't borrow the money from an obstinate world?

An Indian economist recently wrote that US needs money to finance its consumption, the world provides the money. It's like a shopkeeper providing the money to a customer so that the customer keeps buying from the shop. If the customer will not buy, the shop won't have business, unless the shopkeeper funds him. The US is like the lucky customer. And the world is like the helpless shopkeeper financier''.

America works on the dictum that makes new global consumers; the debt is too trivial and can be paid off. American debt, seen in the light of new global consumerism and export of American habits, it is miniscule. The analogy of that shopkeeper is so off the mark that one can only ridicule and rubbish it. Yes, our world may be a shopkeeper helping the customer, the US, to buy more, by lending her credit, but the customer in this case is buying goods which are primarily and intellectually made by him. They have a huge hold on global intellectual property rights.

Everything they buy helps their own self and, on top, to keep the world's affluence on track they need to consume. Henry Ford used to say that he would only succeed if his workers can purchase the cars he makes. In similar vein, American dominance is sealed by making new converts globally who get addicted to products of the US. That cannot happen if China and India stay poor; the prosperity of China and India helps no one more than the US, since their savings are ploughed back into the US, and the rising middle class in India and China are the captive audiences of America's corporate global reach. The new middle class is more American than Americans themselves; they love Al-Pacino and Hollywood; they take popcorns and use Microsoft. Imagine this: instead of 260 million domestic consumers, American corporations are looking at 1,000,000,000 by the end of this decade. The average revenue per consumer is a mind-boggling 500 US $ per month; add this consumption on movies, communications and medicines, and you could easily see where is Dow and NASDAQ heading in the next decade.

It is 'supply side economy with benevolence' that is answer to the present new-found prosperity of the world; incentives and openness is the basis of the world's new-found affluence with the US acting as a growth engine and attracting the free capital of the world. Economy without compassion shall not exist; faces of New Orleans are showing that to the US government as we write; the invisible hand of compassion has to be behind any successful supply side efforts.

Take CDMA telephones for example, who gets the royalty for Qualcomm chip inside, or Nokia phones, they may be a great selling brand but ''smart technology'' inside is dependent on a few US corporations and they get their cut through royalty. Dirty industry like toy-making and garment-making has been shifted to the third world and China because they have low wage structures and they can 'export price stability' to the US. The reason US can sustain 70$ a barrel today without any sizeable dent in the spending pattern of disposable income is because of falling prices of communications, falling prices of technology and falling prices of garments and shoes and, moreover, inflation adjusted oil is still far lower than appreciation of any other asset class over the last 30 years. Rather in commodities inflation adjusted we are in a low cycle.

From entertainment to drugs like Lipitor or food products or Proctor and Gamble or amongst the top 100 well known brands, 82 of them are US companies like the MSFTs, Cisco's and Intel's of the world; even with chilies, an Indian specialty, 'Tabasco' does it better, or Kellogg or Heinz or Donuts or Ice cream like Hagen-Daaz or Baskin and Robbins, who is eating and becoming used to all this? They are the billions of nouveau riche of the world? It is China and India that are getting used to the 'Duracell' way of life or 'way' of Baskin Robbins. I will avoid McDonalds or KFC's contribution to this long list of US corporatism that dominates the world's taste and palates.

A way of life is being transported from US and "nous sommes Americain" is happening at Gods speed. If a nation can export its culture through a few trillion $ debt, so be it! It is a virtuous cycle for that nation. Even US economist fails to understand the simple dynamics of this whole complex phenomenon; the 'new economic imperial reach through knowledge and products is something that this world has never experienced before.

They can afford to get all the credit of the world since their markets have the depth to consume this capital. No other markets have this. Kuwaitis and Saudis are advancing nearly everything from the oil windfall back in to treasuries and US investments since they are the most dependable and triple-A rating.

I can imagine the anger of the world and Europe, for that matter, that this customer of ours, i.e., the US who is buying all these products on shop keepers' credit, and has IOU notes which are more trustworthy than gold, and those notes can buy oil as well as gold. The currency of global trading is $, not because people love the US but because no other currency offers the ability and liquidity. If a nation finds consumers four times the size of its population, why should it care about debt? The "intellectual lock" is so huge!

The R&D of Harvard alone is mind-boggling; their endowment fund is around 16 billion $'s. Not many schools in the world can show this kind of huge expenditure on education and excellence. Many R&D-heavy stocks are worth looking at, it's really those R&D that are going to drive long-run corporate performance, Pfizer spent $7.6 billion on R&D for drugs and $2.7 billion on plants and equipment. The drug maker deducted the entire $7.6 billion R&D expense from earnings because the accountants do not consider R&D a long-term asset whose value can be quantified. No credit is given to the investment in the future in evaluating Pfizer's earnings!

Europe is rotting with 35 hours a week labor, whereas US is flourishing, not because I say it, because we take pride in sending our kids to US schools even in Karachi. US consumerism is addictive and is right there, it is in your own home, that is the real reason everyone in the world supports that consumerism with their hard earned dollars. I thought you will enjoy this also which I wrote in 2003.

Now, what happens to America when it can't borrow the money??

The Chinese first of all would go bust; their entire prosperity depends on US imports, in turn they deposit their earnings in TB's to support the US consumerism. The present deficit and import - export game is not a zero sum game but a positive cycle. The US remains the growth engine of the global economy with the aim that many don't understand - that of creating new buyers by exporting the American way of life! The new riches bring new habits of films that are made in Hollywood; the need of keeping in universal contact that is fed by coalition of MFST-INTC-DELL and CSCO; the basic requirement to feel healthy and remain healthy that is fulfilled by pharmaceuticals that are predominantly American. Europeans do not make the best cocktail for Aids, or from Alzheimer's to Parkinson's to ordinary blood pressure; US companies own the intellectual property rights and innovation rights. Old historical nations of the east are inflicting on themselves US habits, life style and similar health problems and for that new consumers with massive appetites are being added. I see no threat of so-called unsustainable phenomenon of financing the deficit. The wave of new American habits loving consumers sadly for me appear nowhere on any economic pundit studies! They abuse Americanism every day in the Middle East over super big cups of Starbucks coffees, hating America is fun talk, living the style is the walk the talk.

The "mother of all exports" and the strongest of all commodities is 'The American way of life;' new Chinese and emerging nouveau riche in the sub-continent are styled in unabashed US consumerism. US is creating a huge market outside the US; in a region of billion people who depend on US products, like Starbucks for their coffee and big Mac for their lunch, sushi are out and the US empire has done what no one else has ever done - create a billion new consumers without taking their retirement responsibilities.

The trade deficit is a big plus as far as new outposts keep creating new global frontiers where American way of life is the way to go. From Tinanmen Square to Red Fort in Delhi, the 400 million plus new middle class just in these two countries are going to become the next baby boomers. No one but the American exporters of services, medicines and food will benefit from this huge rise of middle classes in China. The fact is that the US deficit is a small price in terms of keeping the world economies growing, but the real goal that is not appreciated by any Krugman is that all these are adding to a new consumer class that underpins future US economy. A new Europe is emerging from consumerist habits of Americans from the ashes of poverty of China and India; this could not have been possible or could not have been created by any Europe. The US deficit is the most intelligent policy ever devised by any global empire; it arises out of natural selection because freedom and hoping for a better life is a way we all want to adopt.

A new ASEAN baby boom is the future I see. It is in the interest of China to finance this deficit, Theirs and the 586 billion dollars of Hong Kong reserves do not at the moment have a region that has an appetite for this kind of parking of capital.

The R&D of US companies and consumerism of the US public decontaminates the global economic system and provides their capital an oasis of suitability and a market where it can optimally utilized. Defense may be wasteful expense but keeping peace in the world by the global policeman helps the merging regional powers like India and China the most. Imagine a squabbling war torn world, the new prosperity of India and China has lot to do with peace dividend. A burning Iraq may be a US humane and budgetary problem but a Saddam free Middle East is windfall for the economies of the region, from Iran to Gulf littoral states all are benefiting from this new peace within regional states. To keep an open world for trade may be mostly shouldered by US but the beneficiaries are from Russians to Europeans not to forget the BRIC's nations. Someone lese is picking the tab for world washed with liquidity and prosperity post 911. Yes those very same nations benefiting from this new global economic activity are more than happy to send the $'s back to nation who is at the center of all this. It is positive virtuous game for everyone, why should any player destroy the precarious balance.

America in return by default is building 'millions' of new Americans everyday who like their way of life but perhaps may disagree with their politics. It is all about creating "markets and consumers" prosperous enough to pay for the future intellectual rights of US corporatism. The stranglehold of the American corporatism on the global markets has a premium far bigger than present global debt. The few hundred billions of deficit is small change if compared to collateral benefits of creating a billion new customers in emerging markets. Imagine a world that is totally littered with poverty; a rich India and a rich China benefits no one else but the US. US instead of launching a "Marshall plan" to create consumers is exporting prosperity through trade, exporting a dirty industry that is inefficient within the US borders, but makes perfect sense for people on the lowest rung of the ladder. The two are entwined, the interests are forged, and this is the link economist like Krugman cannot distinguish!

The free spree spending of America has brought the benefits of lower prices on the mall shelves, but for the Chinese from 1972, a few billion-dollar reserves to 356 billion today and massive increase in life style will only be possible if US stayed the course. It is naive to assume that Chinese or Asians will withdraw their funds from the US. The liquidity arising from such withdrawals has no place for parking; overheating is a challenge that Chinese are still facing, the same with India. The new reserves of 100-plus billons has created a new middle class that loves American values although US-bashing may be a common slogan after a dose of Lipitor, a big meal at Taco bell and double cream _Mocha cold from Starbucks. Every time the new rich middle class steps into the new world the tills at the US corporate in US start ringing; for every cent the new generation spends there is a cent of royalty for US corporations. This nonsense of unsuitability of US deficit is a cry of theoretical economists.

[john]

Iqbal Latif,

If you need so much words to proof. It must be wrong.

[Jon Thompson]

muirgeo:
Social Security is a government program. SS was never set up to be permanently solvent or anything. It is just another tax on one hand and benefit on the other. The total debt figure is idiotic; the public debt figure shows how much we owe. The amount paid in SS taxes doesn't have anything to do with future shortfalls in SS benefits, and if we were socking the money away, the problem wouldn't disappear. The problem of future SS insolvency is really based on the fact that SS encourages early retirement even as LE increases and quality of senior life increases even faster, during a demographic period in which the number of workers to retire citizens will shift massively. Besides, the shortfalls are expected to dwarf the entire size of the "real deficit" enormously. Even if the national economy WERE like a household budget, and we did save all that money, we'd still be faced with huge shortfalls.

Simple version: SS is a tax and benefit system, and we don't have an SS problem in the future, we have a retiree problem (for example, Medicare is expected to be about three times as expensive as SS in 50 years, and we aren't robbing any imaginary Medicare lockboxes). Right now, SS is taking in more than it pays out. The difference is paying for things in the general budget. In fifty years, that will reverse.

The debt to watch is the public, not the total. The deficit is 1.1% of GDP, not 3.4%.

[Boghie]

ilsm:

"can be traced to the lack of military spending during the late 90's."

Exactly what was not spent on what?

Be a little specific.

Did El Clintonista stop them from buying ammunition? YES, general ammunition as well as stockpiles of more expensive armament. Remember, we ran out of Tomahawk missiles during the October/November 2001 conflict in Afghanistan.

Did El Clintonista stop them from producing the MV 22, F-22, new ships? (tell me your thoughts, I know why they were not bought and it was not stringiness)? YES, he delayed development and purchase of these weapons systems. Additionally, how else do you go from a 500 ship Navy to a

From a micro economic standpoint enlighten me as to how stockpiling is useful. It is rather nice to have the armament on hand and fully developed when you are pushed into conflict. Also, for all the libs squealing about Tora Bora and how the 'military is broken' please review the stats. The Marine Corps was at 162,000 personnel on 9/11 - they are over 187,000 now. The Army was at 387,000 on 9/11 - they are over 500,000 now. How did the Mighty Clinton prepare us for conflict - and please provide concrete examples!!!

How come it costs more to do it later when you did not need something then or now? When you rush production on closed production lines the cost of that production is much, much higher./i>

[PODO]

Great info, thanks a lot!!! I wish I will have such a writing skills.