Updating the Government’s Vision into our Economic Future

August 25, 2009 by  
Filed under Economics

future_economyThe Congressional Budget Office this week issued its Summer Update of projections for our national economy. Although the White House has seized on one piece of positive data ( a slight downward adjustment of the projected 2009 deficit), the overall picture being painted is quite unpleasant to look at.

Let’s first dispense with the “good news.” The CBO lowered its projection of the 2009 budget deficit by $80 billion, to a mere $1.6 trillion. This is due to lower than anticipated TARP subsidy costs, mostly offset however by lower than anticipated revenues.

Now let’s put this inside the big ugly picture.  The 2009 federal budget deficit will represent 11.2% of GDP (Gross Domestic Product) which will be the highest level since WW II.

Further, the CBO predicts that with current law and policies remaining in place, the deficit will exceed $500 billion annually through 2019. (This is without costs associated with healthcare reform legislation.) That means that the public debt would grow each year, reaching 68% of GDP in 2019. The public debt was 33% of GDP in 2001 and is expected to be be 54% of GDP this year. Scary stuff.

Oh, and even these awful projections are based on the assumption that federal revenues will increase if all of the tax cuts implemented earlier this decade are allowed to expire in 2010. The expiring provisions would include those intended to keep the AMT (Alternative Minimum Tax) away from the middle class as well as lower rates on capital gains and dividend income. If that happens, the equity markets could go into another deep slide. If some of the tax cuts are renewed, the deficit will balloon even more.

Folks, this is not sustainable. This is not just my opinion. From the CBO Director’s blog:

Beyond the 10-year budget window, the nation will face further significant fiscal challenges posed by rising health care costs and the aging of the population. Continued large deficits and the resulting increases in federal debt would, over time, reduce economic growth. Putting the nation on a sustainable fiscal course will require some combination of lower spending and higher revenues than the amounts now projected.

With the White House and Congress engaged in runaway spending and economic activity in a slow growth mode, taxes on the middle class will have to be increased. I cannot see another way out of this.

So what does this mean to you? You may be like millions of other Americans who have been numbed by all of the gigantic numbers and bad news.

Snap out of it.

You should prepare to vote based on what you want for your economic future and for your children. Read the CBO report. Ask your representatives in Congress if they have read it. Then ask what they intend to do about it. If you don’t get the answer you want, ask those questions of another candidate.

This is not Obama bashing. Bush started this train wreck down the tracks. Obama and friends are just stoking the fires.

Or you could just sit there and let it happen.

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8 Responses to “Updating the Government’s Vision into our Economic Future”
  1. lurker carl says:

    I wouldn’t say Bush started this train wreck because it’s been about 100 years in the making. Bush sure didn’t do anything to derail it. Congress has a major role in assembling and orchestrating these schemes, even more so than any President because they “write” the bills that go on the President’s desk and have the power to overrule a veto. But we all know our Senators and Representatives don’t actually write (or read, as we are now painfully aware) the bills, they depend upon their entrenched staff and loyal supporters for that task.

  2. MasterPo says:

    All that assumes no disasters or catastrophies or wars (of course we won’t have any of that while Obama is in office, the world loves us now, right?) that will require huge gov spending to address.

    But you know that isn’t realistic. Stuff happens.

    We have to face reality – EVERYBODY’S taxes are going UP UP UP! There is just no way around it.

    Gov (at all levels) is unwilling to cut spending. Talk about a detachment from reality!

    So how do you make even an attempt to pay for all the spending?


    Already doing the first two. The third is just a matter of time.

  3. cjbr549 says:

    The only way our representatives will in Washington will balance the budget and pay off our debt is if there is an Amendment to the constitution that requires it. Until we have a grassroots campaign (they won’t do it themselves) that’s not going to happen. I wonder how much revenue would be generated by eliminating ALL refundable tax credits? I don’t have allot of problems with letting the very poor skate out of federal income tax (they still pay corporate, fuel and other taxes) but I do have a problem with using the Federal Income Tax as a welfare system. Certainly getting rid of the refundable credits would get allot more people actually paying some tax. Just my two cents.

  4. MasterPo says:

    CJ – Be careful about pushing for balancing the budget.

    Balancing the budget (meaning what you spend = what you take in) is *not* the same as reducing spending or paying off debt!

    IOW, to balance the budget government can just raise taxes to cover the short fall. For example, if the budget is $2 trillion and expected (because no one every really knows for sure until it actually happens) tax revenues are only $1.5 trillion then you would *think* gov will reduce spending by $250 billion. It might, but I won’t be calling Vegas on those odds. Instead, gov can just raise taxes by $250 billion and problem solved the budget is balanced!

    Not what you or I wanted to happen.

  5. cjbr549 says:

    I realize that the consequences of a balanced budget have to mean higher taxes. But we will reap them one way or another anyway, if you consider inflation a “tax”. I did some figuring some time ago (prior to the current budget and stimulus) that without spending reductions it would take approximately a 50% increase in federal income tax on those that pay taxes for about 30 years to pay off the debt. I happen to be one of those taxpayers, and of course it’s worse now. But the only way I see for the Government to get this debt back down to a manageable level is to cause some pretty nasty inflation. The bright side of that is that inflation hit’s everyone, so it’s not just the people who put their names on the 100 million or so tax returns that actually pay taxes that have to bear the burden. Inflation is the ultimate fair tax. It hits everyone, rich, poor and middle class equally. Of course the rich can move their liquid assets into other assets that aren’t inflating, but allot of those assets aren’t liquid. My point is that there is nothing to stop them from running us financially off a cliff, which may have already happened. Certainly public opinion hasn’t.

  6. MasterPo says:


    I think you missed my point.

    It’s not a one time tax increase. It’s the potential for an *annual* tax increase to cover the budget gap!!

    IOW, “balancing the budget” can easily be done just by raising taxes over and over and over, year in/year out and doing nothing about the spending end.

    Raising spending and taxes to cover it is the same cliff you speak of going off.

  7. Rick Beagle says:

    You know, Paul Krugman has an interesting article on this subject.

    There is a certain logic when coming to a period of financial crisis that money should be spent in a manner that benefits the basic underpinnings of the economy both short and long term. In an effort to drive this point home, if you lost your job today – depending on your situation, it might actually make sense to spend money rather than save it. Retooling or refreshing your skills is an easy example of this. The Stimulus Bill is our country’s retooling efforts.

    It is easy to look at this type of spending and think Congress has lost their minds, but in reality, this is what we need. What is maddening though is our indifference to the spending of Congress when things are going well. We have been spending like drunk sailors since Reagan and the “dawn” of fiscal conservatism.

    And if we do pull our collective heads out of our nethers, where do we make cuts? The Defense Department is LONG overdue for a reorganization and some serious budget trimming, but gah, good luck trying to get that through. And on the social services side of the house, you have the same set of issues.

    IMHO, the changes need to start locally. Localities need to encourage and embrace small businesses. Everyone usually jumps on the LOWER the taxes bandwagon, but that is a line for the FOX idiots. Relatively simple efforts like revisiting obsolete codes, reducing overhead, streamlining and adding efficiencies to processes are often very cost effective, but they do not build the base like LOWER taxes and propel you to the governor’s mansion.

    Having rambled enough, let me conclude by saying yes we are deficit spending, but is it the right course for this time frame. Based on historical models it would seem that it is. Should we be giving Trillions to Wall Street – HELL NO. Should we use this time and these funds to improve our energy grid, move away from the oil standard, improve our school systems and invest in Green businesses… um yes.

    Rick Beagle

  8. MasterPo says:

    Oh Rick. I so thought I was making an impression on you. (*SIGH*)

    Tell me all about this “re-tooling” the stimulus is doing?

    How many people you know are going to retraining/re-education setup and paid for by the stimulus? How many businesses have received grants to throw out old equipment and buy new equipment because of the stimulus?

    If the stimulus is to retool and retrain then why has ony 7-10% (depending on who’s numbers you use) been spent since it’s been passed? For that matter, where are all these “shovel ready” projects just aching to get stimulus money? I haven’t seen any new construction in my neck of the woods.

    Defense is only about 20% of the national budget. Can you explain how 20% is hurting 80%? Is this math I didn’t learn in school?

    Let’s go with your “re-tooling” idea.

    So you’re telling a 45 year old out of work CPA or network engineer or lawyer or project manager etc that he (or she) is to now spend months in training to become – what? A plumber? A welder? An electrician?

    That’s just great. Take a person at the peak of their earning years and toss them down to the bottom of the ladder again. You really think they’re going to be paying back mortgages making $15/hr for starters? You think they’re going to be buying and stimulating the economy? You think they’re going to be saving for retirement well? Putting kids through college?

    And that presumes they qualify for the re-training. It’s not in any way, shape or form a guarantee! The paper work to qualify can take weeks or months! (been there, tried that)

    And even if they do go through all that crap, where are the jobs? I don’t see new construction companies forming all over the place? And even if they did, why in Heaven’s name should a company hire a 45 y/o re-tooled/re-trained plumber/welder/electrician when they can hire someone with years of experience?? That’s not realistic.

    ps- If “green” was so green why does it need sooooooo many government tax breaks, credits, and rebates to get people to buy it?

    pps- Remember that another of your idols President Clinton passed a sweeping EPA reform plan. That too was said to create thousands of new jobs in the polution control industry. How many people do YOU know that work in that field as their primary job?

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