Corporate tax receipts growth in the last twelve months has gone negative; that's not good and it's pulling the trend lines apart. Although the deficit is still harmless at 1.3% GDP, it doesn't look good for anyone who has been looking forward to a balanced budget within the next two years. If the economy recovers quickly from the current slowdown, that might change, but a recession would solidify the current trends. Here's the latest chart; click to enlarge.
Well Steve, that just sucks (all the wind from my sails) that is.
Posted by: Counter Revolutionary | 14 January 2008 at 11:22
You are going to have to buy someone dinner, eh steve? =P
Posted by: James Dhimmi | 15 January 2008 at 09:39
People like steve believe their own B.S. Economics is not a complicated subject, even a layman can understand it.
Consumption is a reward for production. Debt is nothing but consuming future production in the present. There is no such thing as something for nothing. When somebody gets something for nothing, somebody else gets nothing for something.
All of us measure our debt against our income, Steve here decided to measure it against GDP. LOL.
Debt should be compared against the revenue that the federal government is bringing in.
http://econotrashtalk.org/
Posted by: Neocon Spin Master | 15 January 2008 at 12:32
Surprise...
Federal receipts start to decline in January 2007...
Federal spending starts to increase in October 2007...
January 2007 is when the threat of tax and regulation increases became reality...
October 2007 is the first budget proposed by the new House of Representatives...
I'm not saying that the pattern is definitive. But, it is certainly a supporting structure to the pattern. There is no chance for balancing the budget now. But, we voted for it…
Question: Does the Executive Branch have to spend all the money the House of Representatives allocates – or can it unilaterally decline to spend say 10% of it? I think the Executive Branch is forced to blow the money allocated, but maybe not. If not, than I don’t want to here excuses about Congress blowing the budget. If forced, maybe a lame duck President can take the heat for balancing the budget on the backs of the children and senior citizens and all that blather.
Posted by: Boghie | 15 January 2008 at 12:33
James:
In 24 months, I will be buying someone more than dinner, if the trends don't improve.
Neocon:
Your reasoning tells me that you, like many others, don't understand growth. Don't feel bad, it complicates the analysis tremendously.
FYI, I didn't invent debt/gdp ratio; other economists did. It is a reasonable enough proxy for what I think is more to the point: net interest as a percentage of tax receipts (the inverse of times interest earned). That number has decreased from 15% ten years ago to 9% today.
I also presume you are aware that the present value of paying off all the debt right now is exactly equal to the present value of never paying it off (i.e., paying interest forever)?
If not, it might do you some good to look up "consols" -- interest-only, perpetual bonds issued at one period by the British government. In effect, that's what we have in play today as we continue to roll the debt over and over, perpetually.
Posted by: Steve | 15 January 2008 at 13:38
Neocon,
When you retire are your retirement holdings going to be purely in stock or cash or municipal bonds.
Or, are you going to seek Federal Treasury bonds.
Hmmmmm...
What if all you had was corporate junk bonds and state debt?
Posted by: Boghie | 15 January 2008 at 15:33
When you retire are your retirement holdings going to be purely in stock or cash or municipal bonds.
Income generating real estate - rentals and farmland, dividend paying stocks and cash.
Posted by: Neocon Spin Master | 15 January 2008 at 16:01
Neocon, I hope you own those properties today. Because it's going to take that ole growth thingy to make them income producing. If they are already producing, then it took that ole growth thingy.
BTW, retirement is good! hope y'all enjoy yours as much as I enjoy mine.
Posted by: CoRev | 15 January 2008 at 16:18
Can you explain why you (or economists in general) display the excess spending of the government in terms of GDP?
The GDP is not the government's money. The GDP is _MY_ money. Well, me and all my hardworking friends. Were I to explain my personal excess spending in terms of a fraction of the incomes of all the people living on my street that would still not negate my responsibility to pay my debts.
I must confess that I need to learn about the consols of which you speak. When you mention present value above I can't help but suspect that there is an inflation term buried in this discussion. In my ignorant suspicion I just might write something like, so if the present value of paying the debt today is the same as the present value of never paying off the debt, then we can ride for free as long as we don't mind having money with zero value at the end of infinity.
I would agree that fostering growth as a matter of public policy is a better way to increase tax revenues than simply raising the tax rates. In that respect I can stomach indexing bad behavior to the GDP. That is what seems to be displayed here.
At the end of the day, this particular neighbor named Uncle Sam, he has the ability to stand at the end of the street and exact a toll from all of the neighbors for the great crime of being productive. And if everyone on the street would just work harder and be more productive, then Uncle Sam could pay his debts.
I say bollocks. Uncle Sam should learn to control himself. This regardless of the economic trends at play. I believe we would be operating from an even greater position of economic strength if we all would forsake indebtedness. Yes, Uncle Sam too.
I just discovered your site and I quite enjoy it. I also recently discovered economics and I thoroughly enjoy that too.
Thanks,
Jason C. Wells
Posted by: Jason Wells | 15 January 2008 at 23:21
Jason:
Would you agree that federal tax receipts are the relevant proxy for "income"? Would you also agree that net interest paid on the debt is the full cost of debt -- when the debt is permanently rolled over (as we are doing), and as British consols (perpetual debt) were?
If you agree with both of those, then you'll probably agree with key indicators 5 and 6 from a post of mine from last year ( http://tinyurl.com/2ol77m ), which I'll reprint here:
----------------
[Key Indicators]
5. Net interest as a percent of federal tax receipts.
An indicator of the federal government’s creditworthiness. The inverse of “times interest earned.” (A purer indicator than #6, I think, but not as well known.)
6. The ratio of nominal federal debt to nominal GDP. A proxy for #5. Some say “publicly-held debt” is the important numerator—but I prefer to track that ratio and the “total debt” ratio, because demographics are likely to begin transforming intragovernmental debt into “publicly-held” debt rapidly within the next two decades. See the debt clock at the upper right of this page.
-----------------
Posted by: Steve | 16 January 2008 at 07:33
marmico:
The net interest on the debt, not the gross interest, is what affects the government's creditworthiness. The difference is the interest the government pays to itself. As much as biased ideologues harp on gross interest for political purposes, interest payments are not monetarily meaningful until they are transformed into interest paid to non-government holders of debt. That will start happening gradually, beginning when the SS trust fund starts running a deficit; it is not running a deficit yet.
Economists (who understand monetary economics) verify the fact that net interest is the meaningful number, not gross interest; politicians and ideologues ignore or suppress it. You strike me as an ideologue on the left who doesn't want to acknowledge the facts, and I'd like to discuss this further with you offline. I'll send you an email; we can proceed from there. Among other things, I'll want you to remind me of your real name.
Posted by: Steve | 16 January 2008 at 11:28
I know that the purpose of this blog entry is to follow the progress of the deficit, but wasn't the parallel lines outcome a forgone conclusion?
The economy has been growing at a relatively slow rate following the recession of 2001 with employment numbers never really taking off. We knew the business cycle would roll over eventually, didn't we?
Sure economic growth is important, but so is government spending-- not so much the amount but the priorities that are funded by the borrowed capital. Even with slower economic growth, a budget can still come close to balance, no? Or if deficits must grow, they should spent on investments that will ensure sustainable economic growth for the future.
Steve, I appreciate your yeoman's effort at number crunching, but I notice that you rarely differentiate between projects that the government votes to fund, thus you treat all spending as virtually the same.
Don't certain federal spending outlays lead to greater economic growth while others do not? Should that ever be part of the discussion?
Posted by: Grodge | 16 January 2008 at 23:41
Grodge:
What causes (or protects) growth? The question of the millennium.
Is a one-time, $500 per person demand side stimulus package a better growth driver than a 10% reduction in the capital gains tax? Is a 5% increase in teacher union members pay a better growth driver than a tax credit for donations into the low-income students' college scholarship fund? Is a billion-dollar surplus better than a billion-dollar program to beef up embassy defenses against attacks?
You tell me; I'd love to know the answer, and why it's so. Until then, I'll just continue to make the broad assumption that "people respond to incentives." (Guess which brand of economics that underlies. Hint: it's a dirty word to one faction of ideologues.)
Look for this coming Saturday's "favorite quote"; it's about economists and predictions.
Posted by: Steve | 17 January 2008 at 05:27
Steve and Marmico,
I apologize for the late answer to your questions-- I have been busy contributing to the economic growth of our fair land.
It's all about priorities, Steve, as you have alluded. Borrowing money to flush it down the Iraq Occupation does not seem like a good use of funds, especially borrowed funds. Likewise, subsidizing oil companies and corn syrup manufacturers is ludicrous. I've said this before.
If we were going to borrow money in order to educate our kids, provide health care to keep workers healthy, develop technologies that would make us more energy efficient and energy independent, then I would be the first to rescind my deficit hawk stance.
Giving $500 "stimulus" cash to a proletariat class to spend on McDonald's hamburgers and plasma TV's seems completely counterproductive. It only serves to reinforce this consumerism that is destroying our economy and our relationship with the developing world. We voraciously consume crap made with slave labor and we voraciously consume natural resources that enriches and enables dictatorial regimes (and probably melts our polar ice caps.)
Maybe the economic stimulus should be spent on school computers for the inner city, or updated textbooks for community college nursing schools, or the development of noncarbon energy technology, or a teen pregnancy prevention program for the inner cities.
In the long run, we would benefit exponentially from such measures compared to merely feeding the consumer spending addiction that politicians do with knee-jerk celerity at every turn.
Posted by: Grodge (aka Tony) | 18 January 2008 at 18:39