Projected US Budget deficit shrinks.

[Beowulf]

Washinton Times

Last week's Treasury report on U.S. finances for December shows a year-to-date fiscal 2005 deficit already $11 billion less than last year's. In the first three months of the fiscal year that began last October, federal cash outlays rose 6.1 percent and tax collections grew 10½ percent. When more money comes in than goes out, the deficit shrinks.
At this pace, the 2005 deficit is on track to drop to $355 billion from $413 billion in fiscal 2004. As a fraction of projected gross domestic product, the new-year deficit will fall to 2.9 percent, compared with last year's 3.6 percent.

Aforementioned Treasury Report

[Tsyroc]

You know what this means don't you?

Time to spend all that money we're saving on everyone's pet projects!


Oh wait, we're only sort of saving money in the sense that we aren't going as far in the hole as we expected. Not that it ever stops politicians from wanting to blow more money.

I absolutely hate how the US Government tends to spend its money issues. Let's hope they don't do any of that crap this time.

[Lord Zentei]

Some (moderately) good news from the economic front, then: that the projected growth in debt as a fraction of GDP is less than the projected GDP growth...

[Patrick Degan]

Hate to pee on Larry Kudlow's warming little campfire here, but:

Link

Critics Call Bush's Deficit Efforts Feeble

By ALAN FRAM
Associated Press Writer

January 13, 2005, 12:37 PM EST

WASHINGTON -- One guiding star in the $2.5 trillion budget that President Bush ships Congress next month will be his goal of cutting the federal deficit in half by 2009.

The White House first proclaimed that objective during the summer of 2003, when it was envisioning annual deficits exceeding $450 billion for the immediate future. The 2004 federal budget shortfall came in at a record -- but less than expected -- $412 billion.

The White House touts the goal as part of its commitment to get the budget under control, while critics mock it as a feeble feint at fiscal prudence. Following is a look at how the effort is going.

Q: If last year's deficit set a record, it had to be worse than the previous year's shortfall. Doesn't that mean Bush lost ground trying to reach his goal?

A: Last year's deficit was $35 billion worse than in 2003. Yet administration officials say they made big progress toward reaching their target.

That's because White House budget chief Joshua Bolten defined their starting point as the $521 billion deficit for 2004 that the administration projected a year ago.

Since the actual 2004 shortfall ended up at $412 billion, the White House claims it made progress to the tune of $109 billion. It also let them set a bigger deficit target for 2009: $260.5 billion, which is half of $521 billion.

Had they used last year's actual $412 billion deficit as their marker, their goal would be a tougher $206 billion shortfall. Had they started with the actual 2003 deficit of $377 billion, they would be shooting at an even harder-to-achieve $188.5 billion for 2009.

Q: Why cut the deficit in half in the first place?

A: Mainly to prevent it from hurting the economy.

To judge the deficit's potential for causing such harm, many economists say it should be compared with the U.S. economy, which surpassed $11 trillion last year. Measured that way, the worst deficit since World War II was under President Reagan in 1983, when the shortfall ate up 6 percent of the economy.

Administration officials say they want to trim the deficit back to 2.2 percent of the economy -- half as big as their projected $521 billion shortfall for last year would have been, and the average for the past four decades. They say historic data shows that once red ink shrinks to that size, it does not drive up interest rates or cause other economic harm.

Q: Why not aim at eliminating the shortfall completely?

A: Balancing the budget is exactly what deficit hawks say should be the goal. They point out that when deficits reached the $200 billion range in the 1980s and 1990s, policy makers, including the first President Bush, always aimed at eliminating them, not merely halving them.

Bush critics say this is an especially important period to erase deficits because the first of the 76 million baby boomers will begin drawing Social Security benefits in 2008, heaping even more pressure on the budget.

In addition, the steadily growing net interest the government pays on its debts neared $160 billion last year, soaking up funds that could have been used for other programs. That is more than the government spent for anything but Social Security, health, defense and welfare.

Administration officials say they may do more than cut the deficit in half -- if the economy gets stronger than expected and if spending falls below what the White House anticipates. But eliminating the deficit will take far more robust economic growth and deeper spending cuts than most analysts expect.

Q: Will Bush meet his goal?

A: Many people think he will -- but disagree on how he will do it and how meaningful it will be.

Administration officials say their prescription of tax cuts -- for generating economic growth -- and spending controls should do the trick. Critics say Bush may reach his goal, but only by ignoring the costs of items like revamping Social Security and the Iraq war.

The last time the administration projected future deficits was in July. It estimated that if all of Bush's tax and spending proposals were enacted, the shortfall would drop to $261 billion in 2006 -- virtually hitting its 2009 target.

Bush plans to submit his budget for 2006 on Feb. 7, but no one expects him to declare victory three years early. In part, that's because he will soon ask for at least an additional $70 billion for wars in Iraq and Afghanistan, which will push him further from his goal.

His budget is also expected to exclude the costs of his still evolving plan to overhaul Social Security, as well as other expenses he supports, such as keeping the alternative minimum tax from affecting more middle-income families.

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Copyright © 2005, The Associated Press

And:

Tough US budget expected in drive to cut deficit
By Andrew Balls and Holly Yeager in Washington
Published: January 17 2005 18:45

The White House is expected to present a tough budget to Congress next month, aimed at signalling George W. Bush's commitment to cutting the federal deficit over his second term.

The budget, the start of this year's financial negotiations with Congress, will seek to follow up Mr Bush's campaign promises with a freeze on discretionary spending other than on defence and homeland security.

Congressional aides expect difficult negotiations, as freezing cash allocations will mean reductions in spending in real terms, adjusted for inflation, in areas such as transport, energy, agriculture, education and science and research. The knife is expected to fall on a number of government anti-poverty programmes.

Some budget analysts see the strict controls on non-defence discretionary spending as unrealistic. Annual spending growth has averaged more than 5 per cent over the past 25 years, and during Mr Bush's first term, he did not veto any spending bill.

Moreover, while there will be a bitter political fight, these items account for less than 20 per cent of the overall federal budget. Entitlement programmes, notably Social Security, the pension system, and Medicare, health coverage for the elderly and disabled, are not subject to annual appropriations.

The administration has said it will halve the budget deficit over the next four years. However, it intends to measure its progress based not on the $413bn (€315bn, £220bn) deficit in the 2004 fiscal year, but instead on its forecast a year ago that the deficit would be $520bn.

Josh Bolten, director of the Office of Management and Budget, said last week he was confident the administration was “on a path” to achieve the goal of halving the deficit by 2009.

But he was more concerned about “the long-term fiscal danger posed by mandatory spending programmes”, including Medicaid, the health programme for poor people, and Medicare.

The administration is unlikely to address Medicare costs at the same time as pursuing Social Security reform. But while the current political debate is focused on the pension system, the budget is expected to include cuts to other entitlement programmes, including benefits to poor families, the disabled, and farmers.

Lawmakers, state governors and federal bureaucrats have begun to grapple with such cuts, long thought politically off-limits, which would affect supportive and outspoken beneficiaries.

Medicaid spending is shared between the federal government and the states, and any cuts in Washington's share would probably fall on the states. Governors are already complaining that, even without a change in the share they pay, the long-term growth of Medicaid costs at 8-9 per cent a year exceeds the growth in state revenues. Further changes to Medicare would also come at an awkward time, on the heels of the tough political fight over a new prescription drug programme enacted in 2003.

Judd Gregg, the new chairman of the Senate budget committee, has complained that spending on the new drug benefit is far higher than initial estimate and signalled that he would review it when his panel considers the budget.

The administration has been criticised by independent economists for leaving a number of costs, including Iraq and Social Security reform, out of its budget arithmetic. Carving out private accounts as part of Social Security reform will cost more than $100bn a year, based on independent assessments.

The administration also faces the potentially expensive reform of the Alternative Minimum Tax in coming years. However, the large costs associated with making the tax cuts passed in Mr Bush's first term permanent begin after 2009.

Given this White House's record in liberally playing with numbers and facts to subvert reality, a rosy projection based upon the first three months of the fiscal year is essentially meaningless.

[Lord Zentei]

Well, shit. Back to reality I suppose. Note the interesting point that the extra spending for the wars are significantly less than the payments for Bush's social security reform and the increasing interest rates.

[aerius]

Meh...let me know when you guys run a budget surplus and start paying down the debt like we're doing up here....

[Lord Zentei]

Or at least the second best thing: keeping the deficit smaller than the GDP growth such that the debt as a percentage of GDP drops.

(Which would obviously be better than what I thought was happening in my first post on this thread: that the projected growth in debt as a fraction of GDP is less than the projected GDP growth. That wouldn't have been any reason to break out the champagne, of course, but any little improvement is a step in the right direction).