January 14, 2005


Psst, the deficit's shrinking (Larry Kudlow, January 13, 2005, Townhall)

Here’s one story you won’t find on tomorrow’s front pages: “The U.S. Budget Deficit Is Shrinking Rapidly.” The headline would be accurate, but the mainstream media is much more interested in talking down this booming economy than telling it like it is.

This week’s Treasury report on the nation’s finances for December shows a year-to-date fiscal 2005 deficit that is already $11 billion less than last year’s. In the first three months of the fiscal year that began last October, cash outlays by the federal government increased by 6.1 percent while tax collections grew by 10.5 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 year 2004. As a fraction of projected gross domestic product, the new-year deficit will descend to 2.9 percent compared with last year’s deficit share of 3.6 percent.

The coming surpluses should ease the worries about transition to privatized SS accounts.

Posted by Orrin Judd at January 14, 2005 9:34 AM

Na. The Dems will then say: "You see, Bush made up all this stuff about a fiscal crisis..."

Posted by: Moe from NC at January 14, 2005 10:33 AM

We will never have surpluses as long as there is no line-item veto, even if overnight we could all fire bullets into the ground and strike oil like Jed Clampett.

The Congress is just too irresponsible and the nature of our 'divided' government encourages that kind of flagrant irresponsibility.

Posted by: Bart at January 14, 2005 10:51 AM

A line item veto would strike a project or two on occassion, not make a serious difference.

Posted by: oj at January 14, 2005 10:53 AM

We'll be lucky if the deficit drops to $350 billion. No mention of Bush's supplemental requests for Iraq & Afghanistan coming up in Feburary, with a price tag estimated at $80 billion.

Sure, Judd Gregg wants the Senate to adopt a budget resolution that adhears to the spirit of the spending caps from the late 90s, but as anybody who knows how the budgetary process really works...the appropriations cmtes hold are the cards and so far no indications of Chairman Cochran or Lewis in the House endoring Gregg's approach.

Posted by: Beltway at January 14, 2005 11:28 AM

Funny how Bush Sr.'s deficits were gonna kill us, and before that Reagan's deficits were gonna kill us, and before that Carter's deficits were gonna kill us, and before that Kennedy's deficits were gonna kill us, and before that World War II's deficits were gonna kill us, and before that the Civil War's deficits were gonna kill us...

We're still here and the economy's doing great, with a misery index comfortably under ten. You'd think the deficit-weepers would have figured out they're pushing bad politics and worse economics. But hey, if the Cassandras wanna keep crying deficit, let 'em go on losing elections.

Posted by: Casey Abell at January 14, 2005 1:15 PM

Anyone who projects a full year's worth of revenue on three months isn't thinking straight. Revenue does not come in evenly throughout the year. Corporations pay estimated income taxes quarterly, as do individuals. Large amounts go out as refunds to individuals in February, March and April, while April sees an enormous influx from payments with returns. And March is big for final payments for corporations, at least for those on a calendar year tax year.

Yeah, income tax withholding is relatively stable throughout the year, but even that sees a huge surge when? --December--as hiring picks up for the holiday season.

Spending, while it has peaks and valleys, is much more stable.

The long and short of it is, all else equal, we would expect to see the fiscal situation improve in some months (generally quarter-end months and April) and deteriorate in others due solely to revenue collection patterns.

Having said that, yeah, revenues are improving and it won't be a surprise to see the deficit at the end of the fiscal year is much smaller than budgetary expectations.

Posted by: jsmith at January 14, 2005 11:09 PM

Oh, and much of the 10.5% increase in tax collections is due to a 45% increase in the corporate income tax, which is notoriously volatile for a variety of reasons.

Posted by: jsmith at January 14, 2005 11:17 PM