Tax Cuts in Action
The White House is expected Tuesday to forecast record budget deficits in excess of $400 billion this fiscal year and next with little hope of a turnaround anytime soon.
The simultaneous operations in Afghanistan and Iraq are running around $60b per year, so we can forgive the administration that. On the other hand, income and GDP are actually rising, so it’s hard to blame the economy for the deficit. Sure, unemployment is up, but that’s a burden that falls disproportionately on the poor, who as Republicans love to remind us, pay little or no income taxes. (Of course they pay payroll taxes, which the Administration has busted out of the lockbox and comingled with general revenue).
What does this mean for you? Higher taxes and reduced services in the future, higher interest rates, and increases in the Federal Government’s cost of debt service.
But surely, as a percentage of GDP, this is not so bad? So says incoming OMB Director Josh Bolten”
“Furthermore, the current deficit — as a percentage of GDP — is not large by historical standards and manageable within the overall context of our economy.”
The CBO projects next year’s GDP at $11.7 trillion, meaning that a $450 billion dollar deficit would represent 3.85% of GDP. Bolten is right that 3.8% is not high by historical standards, as long as you use the right history: the Reagan and Bush I years. On the other hand, Clinton inherited a deficit at 4% and got it down to 3% within a year. So perhaps Bolten should say that the deficit is not large by Republican historical standards. Just to make things clear, I’ve bracketed the years under budgets written by Clinton (1994-2001) in blue:
UPDATE: The projected deficits for 2003 and beyond in the graph are, of course, way too low now–they should look roughly like the Bush I deficits.
UPDATE: It doesn’t happen often, and I had to be awake at 4:30 in the morning to do it, but I beat Atrios on this subject by almost two hours. But he’s got a better graph.