Deficit Watch thru July 2007

The trends in tax receipts and spending are both creeping in the wrong direction, so anyone hoping for a balanced budget in '08 will be mildly disappointed by the latest numbers.  If the current trends hold up, the budget would move into balance in March 2009, five months later than last month's trends indicated.  A little too late to make the home stretch of the presidential campaign more interesting, in other words.   

Click to enlarge:

Based on the July '07 results, I definitely cannot call March '09 a "forecast" for budget balance, because of the three reasons likely to keep the trends bending the wrong way:

1. Individual and corporate tax receipt growth is tailing off (now at 10.1% and 14.5% respectively);

2. Tax-hiking rhetoric by political candidates will reinforce if not accelerate that tailing-off process in revenue growth;

3. Spending growth is slowly accelerating (...and the department of Health and Human Services is a major cause; I'll soon be peeling back that onion to find out why). 

Historically, not much happens to tax receipts in August, but September is usually big.  In short, barring an August surprise, the next good read we'll get on the trends is two months away. 

Comments

[Fuzz]

I was just wondering why there is a difference between the deficit and the net increase in the debt. If you look at the same period, the debt increased $350bn. Isn't any increase in the debt considered a deficit?

[Counter Revolutionary]

Not as good as we hoped earlier, but as I have been saying after we fall below $100B I think we will see the Pols trying to get on the band wagon.

By election time we should see 6 years of nearly flat spending compared to GDP/growth. Not exactly your wild spending administration.

[Steve]

Fuzz:
The "deficit" we always hear about is the increase in publicly held debt -- not the same thing as the increase in total debt, which includes intragovernmental debt.

I wrote an article explaining all that a while back at this page:
http://tinyurl.com/2dljs9

I now wish I'd picked a different title, by the way. At the time, my idea was to copy the principle of the yellow-and-black books. After some reflection, however, I realized that I myself subconsciously tend not to buy those books -- because the title is insulting.

Anyway, ignore the title; the answer to your question is in that article.

[Counter Revolutionary]

Steve, sorry to correct you in your own home, but I think your answer above is wrong. What we are tracking is the simple difference between monthly revenue and expenditures. Differences may end up as public or intragovernmental debt. The difference is probably in large part the interest on that debt.

[Grodge]

I know this is a numbers exercise and not a policy debate, but I was wondering your thoughts on what is going to happen after 2009.

Sure the deficit is "manageable" as our economy grows and receipts increase, even though our GDP growth is slower than the rest of the developed world. Aren't we more vulnerable than, say, Europe or Japan since we have so many commitments-- namely military-- that are sure to last a while?

In addition, the next congress and administration is likely to have to deal with the multitude of problems that have been neglected lo these many years: Medicare shortfalls, the endemic of uninsured folks, crumbling infrastructure, the aging population, more costly natural resources.

I hate to sound cynical, but how come I knew that your rosy scenario of balanced budgets would unravel as we got closer? And the reason for this, worst of all, is that the acceleration in revenue receipts is slowing, and not that we are outlaying more federal dollars to take care of necessary housekeeping.

[rufus]

It might still be pretty close. Dubya's got spending growth snubbed down pretty good. The last four months are running about 2.5%, I think. If we can get a little untangled from this housing mess, and get a few housing loans flowing, we could be looking at next Sept.'s numbers with inordinate interest, m'thinks.

[muirgeo]

We've had this discussion before but I'm not sure my position was properly addressed. On other blogs I cited Clintons budget surplus years only to be corrected by some blogger arguing that Clinton never had a true surplus. I looked into it and found that he was right. In no one year during the Clinton administration did the public debt decrease.

Here's my explanation of how I see our public debt and why I think the right wing blogger who corrected me on the Clinton numbers is right.

Say I make $100,000 dollars this year. Say I purchase
$120,000 dollars worth of goods. Say I also took out
$10,000 dollars in a home equity line of credit to put
in new floors.

What was my personal spending deficit for the year?
The answer is clearly -$30,000. It seems to me you
are arguing that I only spent $20,000 more then I took
in. How is this any different portraying general fund
deficits to make your point while ignoring the total
excess of spending over income?

http://zfacts.com/p/519.html

[rufus]

To say the money in Rufus's left front pocket is different than the money in Rufus's "Right" front pocket is ludicrous. It's all Rufus's money, to spend as he sees fit; and it's all Rufus's responsibility. Rufus can't tell the merchant, "I'm sorry, that purchase was made by the left pocket, my right pocket isn't responsible." Rufus would get a black eye, an invitation to court, or a stint in the pokey.

Clinton had a couple of years when income exceeded outgo. That's a Surplus. It don't matter what pockets the money came and went from.

[Steve]

muirgeo:
I suspect your blogger buddy was using end-of-year numbers to make the point that debt never decreased under Clinton. The Bureau of Public Debt has made it more difficult than it used to be to track monthly and daily debt history from their website, but it is still possible to see the debt decrease during the Clinton years. Go to this page: http://tinyurl.com/yrxrsh then choose April 14, 2000 as the start date, and some later date for the end date; the total debt does in fact decrease.

Publicly-held debt is a more important number than total debt. It decreased as well; unfortunately, the historical data is sparse, as you probably noticed in the daily history.

The general fund deficit is larger than the unified deficit. The former is what causes total debt to increase, the latter is what causes publicly-held debt to increase. The latter is the more important number, because it is what the government pays "net interest" for; the former includes what the government's left pocket owes its own right pocket (...conveniently denominated, by the way, in dollars created and backed by the government).

I just did an experiment to reconfirm all that, by the way. I transferred $25 from my left pocket to my right pocket, placing a sticky-note saying "IOU $25" in my left pocket; but my family's net worth didn't change. Tomorrow morning, I'll move the $25 back to my left pocket and destroy the IOU; I confidently predict my family's net worth still won't change.

Then, just for fun, I'll go to the bank and use that $25 to buy a $50 savings bond (initial price = $25) -- and my net worth still won't change. [However, by using $25 cash to buy a piece of the national debt, I'll be set up to get back some of the interest payments the government is using 9% of its tax receipts to pay. Further, if I bought enough of those savings bonds, I'd neutralize the effect on me of interest on the debt -- just as you or anyone could do. And then, if I bought even more savings bonds, my interest income from that would mean I was collecting some of the taxes you're paying in, thereby transferring wealth from you to me. Just some fun experiments for anyone interested in the national debt topic.]