Deficits are coming down — maybe
There is nothing better for a bad federal budget than a good economy, and the recovering U.S. economy is beginning to work its magic on the federal deficit, which has been in the $1 trillion-plus range the last four years.
The Associated Press says, “For once, the government’s financial shape is actually improving and will get better still over the next few years as the U.S. economy continues to pull itself slowly out of the worst recession since the 1930s.”
That “for once” is a little unfair because from 1993 to 1997 the federal deficit, the excess of spending over revenues, fell by more than $230 billion to around $21 billion — the lowest in over 20 years — before going into the black for the first time in nearly 30 years.
That happy state of affairs lasted four years, until 2002, and the first round of the George W. Bush tax cuts. The federal budget numbers look so definitive in the annual White House budget office, but it’s an open secret in Washington that these numbers are just informed guesses often based on improbable assumptions.
The Bush White House mistakenly believed it was dealing with a 10-year surplus of more than $5 trillion. Then came a second round of tax cuts. The Bush mantra was “we’re going to put some extra money in your pocket,” neglecting to mention that the money would have to be borrowed.
Then we fought a costly war in Iraq and are still fighting a second one in Afghanistan.
And finally there was the prescription drug benefit, whose numbers were greatly fudged to get it through Congress. That wasn’t paid for either.
We might have survived that fiscal recklessness if the economy hadn’t tanked in the worst recession since the Great Depression.
The Congressional Budget Office predicts the deficit will drop to $845 billion this year, and, the CBO says, even if Congress does nothing the deficit will drop to $430 billion by 2015, about what it was in 2008 as the economy began to crater.
But then the fiscal good news runs out and absent higher taxes, cuts in the rate of increase in Social Security, Medicare and Medicaid or a wholly improbably growth spurt in the economy, we will be back where we started. Not a good place to be.