Entitlements and the Federal Budget

The point should be that social security is a drop in the bucket.

The govt should get out of the health business.

 

There are some significant fallacies in the Neil Howe's article, of which I will point out a few.

Or the $1 trillion that the U.S. Treasury has borrowed from abroad thus far under the current administration, supassing the cumulative total under every earlier Presient since the first "GW".

This leads the reader to conclude that deficit spending is at an all-time high. That fails to account for inflated dollars, and expressed in percentage of GDP, deficit spending is decreasing greatly. Next years budget proposal, for example, includes a projected deficit of $354 billion -- 2.6% of GDP. This is 19% less than that of FY 2006. We are indeed growing out of the debt.

It also neglects the current accounts deficit. There are a lot of petrodollars out there, and we want them in circulation, not sitting in a bank reserve. The fact that foreigners are underwriting our treasury bonds is a sign of confidence in our economy. Investors would rather park their money in our bonds than invest them elsewhere, because the have confience in our economy and are satisfied with the return. The long bond issued this week opened at the incredibly-low rate of 4.57% -- below the yield of short-term debt instruments. This is good news, not bad.

The article seems to denigrate the tax cuts on capital gains and dividends:

"By touting the strength of the economic recovery, the White House is trying to score points for the GOP's fiscal stewardship and pave the road for more tax cuts this year-- including about $70 billion in cuts held over from last year's unfinished reconciliation process. Such braggadocio adds little of value to the debate. In fact, the recovery since 2002 has been unremarkable, falling short of the postwar average in both job growth and real GDP growth. There is no denying, moreover, that if the GOP makes all of its tax cuts permanent, federal revenues as a share of GDP will remain
indefinitely below their postwar average. This is a puzzling fiscal strategy for a nation facing new geopolitical challenges abroad and impending demographic challenges at home."

However, since those tax cuts were enacted in 2003:

1) 4.6 million jobs have been added to the economy. This actually understates the jobs gain, because over 1 million people have launched into self-employment, and for some strange reason, they are not counted as "employed" by the government. Hopefully, they will go on to hire employees as their businesses succeed.

2) $1.1 trillion in new GDP.

3) $3 trillion in new equity added to the stock market.

4) $12.1 trillion in new personal wealth.

5) $45 billion more in business tax receipts than predicted by the CBO. (They predicted it would cost $3 billion).

6) General treasury receipts grew by $274 billion in 2005 -- a 14.5% jump in a 3.5% economy. This one year alone paid for the capital gains and dividend tax cuts.

7) The economy grew 3.5% last year despite Katrina. This alone is amazing.

Social security and medicare entitlements alone are 42% of the budget; by the time one adds all entitlement spending, 5/6ths of the budget is off-limits to budget-cutters. The other 1/6th has to include everything from defense spending, foreign aid, and infrastructure to earmarks (pork) and other expenses that make up discretionary spending. Entitlement spending is consuming nearly the entire budget, and politicians have refused to deal with them. President Bush proposed social security reform last year, and the Democrats obstructed it for political purposes.

We only have three choices:

1) Reform entitlement spending. This isn't going to happen. Whichever party has the courage to even propose it is scorched by the other.

2) Grow our way out of it. This requires making the tax cuts permanent (which the Democrats oppose), and expanding the cuts even more. Remember, as the tax rates went down, revenues increased.

3) Do more of the same, and God help the U.S.A.

 

Agreed, Kenh -- in dollars only. As a share of GDP, they are declining fast, at levels below the Clinton years, for example.

If foreign investors lose confidence in our economy, the entire world will be in trouble. We are the most risk-free investment around!

 

But the USofA has assets to back the debt. Half of the land west of the Mississippi is owned by the govt.

 

Well, KenH, all we need to do is promote "national debt consolidation loans"; each couple can cough up $55k, and we'll catch up with our national debt!

But I think Billwald is on to something -- why can our government auction off some assets to pay down the debt? That's what a business would do...