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The Deficit Continues to Decline

Bush's tax cuts are reducing the deficit quite nicely. Deficit hawks need to keep this in mind when the Democrats call for tax increases using the deficit as their excuse. From today's Opinion Journal (subscription required):

The myth persists in some media circles that the federal budget deficit is "surging" or ballooning or something terrible -- all of which is served up as ammunition for those in Congress who want a tax increase. At the risk of being drummed out of the guild, we thought you'd rather have the real story.


The deficit has in fact declined by some $165 billion over the past two fiscal years, and according to the most recent data has continued to fall in the first quarter of fiscal 2007. The latest Treasury estimates for January show that tax receipts in December were $18 billion higher than a year earlier, helping to boost the budget surplus for the month to $40 billion, up from $11 billion a year ago. December is typically a good month for revenues due to year-end tax payments.

Meanwhile, for the first three months of fiscal 2007 through December, revenues climbed 8.1%, building on double-digit revenue increases in the previous two years. Corporate income taxes were up a remarkable 22.2% in the first fiscal quarter, showing that the government continues to grab a nice chunk of the rising business profits that so many of our politicians like to deplore. Individual income taxes rose 8.8%, thanks to strong wage and salary growth. Much of this revenue comes from "the rich," believe it or not.

I believe it. Take a look at the CBO's report. You'll see that for fiscal year 2007, the top 10% of income earners will pay almost half, 48%, off all the taxes, the top 5% will pay 37% of all taxes, and the top 1% will pay 21% of all the taxes.


Comments (24)

It's about time we in the u... (Below threshold)
Mitchell:

It's about time we in the upper brackets got a break from carrying the rest, and the rest shouldered their fair share of taxes.

How can you be a citizen, and pay little, or no, income tax?

US needs to institute a fla... (Below threshold)
Gianni:

US needs to institute a flat tax. A progressive tax system violates the equal protection clause, IMO.

Many will still whine that the rich dont pay taxes, but that just proves to me their ignorance or illteracy. This article proves not only is it a lie, it proves that a very few carry the load for much of the country.

"How can you be a citize... (Below threshold)
Stormin:

"How can you be a citizen, and pay little, or no, income tax?"

When the Dems and the media constantly tell you that the tax cuts were for the rich and that the rich don't pay enough in taxes, would you complain about paying less in taxes?

As a friend on another blog once wrote, if you were to ask people what they paid in taxes, the majority would answer how much of a check they had to write to the IRS in April or what their refund was. Very few people pay attention to the amount of taxes that were taken out of their check.

This is sort of a sticking ... (Below threshold)
jpm100:

This is sort of a sticking point to me. But the "deficit" is viewed in two forms. One is the Total deficit accumulated upto now. The other is the deficit over some give time period.

This piece would be clearer to say that the deficit decreased over this period last year or the quarterly deficit decline. But if you are still in the red, the Total deficit is growing.

Omitting the timeframe was something the media used to praise the deficit under Clinton. Up to that point, if you just said deficit and didn't say deficit spending or yearly deficit, it was implied you were referring to the Total deficit.

So during the phase where deficit spending was declining, they praised Clinton for reducing the deficit. This falsely implied the total deficit to the average joe until the new terminology usage filtered through. This also falsely enlarged the perceived period of time when there was actually a surplus.

Not that the credit blongs to Clinton anyway, but I guess if the media was going to lay it at his feet, they might as well exaggerate it.

That is real good news. Mus... (Below threshold)
Allen:

That is real good news. Must mean the war debt will be taken care of soon, right?

Actually the total deficit ... (Below threshold)
David:

Actually the total deficit is going down as we are paying of the high yield bonds of the Ford and Carter years. Whoever gets elected in 2008 is going to be one lucky puppy as they can virtually do nothing and the budget deficit and the total deficit are going to go drastically down as we finish paying off the extrodinarily high yield 30 year bonds of the last couple years of Carter and the first year of Reagan. And yes, many years ago the government tried to buy many of these bonds off, but many investors and bond groups were uninterested.

As a top 1% tax payer the d... (Below threshold)
cubanbob:

As a top 1% tax payer the deficit in of itself means nothing to me. Taxes are not a la carte, so the taxes I pay will be allocated by someone else. No matter what my tax dollars are spent on I will have to pay them as long as I have the income.
As long as social security runs an operating cash flow surplus the government has to run at a deficit.
Federal law requires social security surplus funds to be "invested" in special federal government bonds, therefore until Congress changes the law so the s.s surplus funds can be invested in other instruments, true deficit reduction is impossible.
Clinton never had a true budget surplus.
The government will never run a true surplus no matter what party is in charge. To do so will require enormous spending cuts coupled with spreading taxes across all the population and not just the top. Squeeze the top too hard and their money disappears out of the country, just like the Kennedy family trust accounts and cut too much the tax consumers will vote out the party that cut their welfare.
To figure out if your a net taxpayer or tax consumer take he federal budget and divide in to the population figure. Take the per capita figure and multiply it by the number of your dependants.
If you paid more then your a taxpayer, if less your a tax consumer.
The deficit and national debt is really nothing more than a never ending mortgage. If you have a 300 thousand dollar mortgage and you earn thirty thousand dollars a year, financially speaking your dead. At one hundred thousand a year income your tight but doable, at three hundred thousand unless your financially reckless it's not a problem. In other words the amount of the debt and deficits are only meaningful in relationship to the national income (GDP). As long as the socialist don't kill the economy, and keep the federal take at or below the current take we can continue like this for an indefinite amount of time.
FDR's true genius was in implementing the payroll withholding tax. People only see their take home pay, gross pay is an abstraction. Prior to FDR everyone had to make a quarterly tax payment. Every worker had to set aside money for taxes. Unless the withholding tax law is repealed the federal government will never be reduced and that is never going to happen.

This war is being financed ... (Below threshold)
bryanD:

This war is being financed (mostly) through W's use of Emergency Supplemental Bills, which are NOT included in the federal budget. It's like the 2 sets of books organized crime uses.

Everyone owes a great big "... (Below threshold)
nikkolai:

Everyone owes a great big "thank you" to our new speaker--Nancy "Stretch" Pelosi. Without her infinite wisdom, this deficit would be out of control.

The federal government runs... (Below threshold)
cubanbob:

The federal government runs on a cash basis, not on an accrual basis so bryanD is fundamentally wrong.
But then again if any business kept it's books like the fed does all of it's officers and directors would be in jail.
Supplemental bills are still funded notwithstanding
bryanD's observation.

Please stop confusing the l... (Below threshold)

Please stop confusing the liberals with facts. It's cruel and unusual punishment because they simply cannot handle them.

But the "deficit" is vie... (Below threshold)
Brian:

But the "deficit" is viewed in two forms. One is the Total deficit accumulated upto now. The other is the deficit over some give time period.

The first you describe is the "debt". The second you describe is the "deficit".

So during the phase where deficit spending was declining, they praised Clinton for reducing the deficit. This falsely implied the total deficit to the average joe until the new terminology usage filtered through. This also falsely enlarged the perceived period of time when there was actually a surplus.

There was nothing false about this. The deficit declined until it disappeared, after which there was a surplus. While you have a deficit, the debt increases. While you have a surplus, the debt decreases.

Brian perhaps you can expla... (Below threshold)
cubanbob:

Brian perhaps you can explain to us just where did the social security administration "invest" the surplus cash during the two Clinton wonder years?
Since the national debt rose even in those wonder years, your premise is wrong.
In theory the government could have the social security administration sell off it's entire portfolio, invest it's (s.s) operating surplus elsewhere, then the treasury could use the proceeds of the sale to pay off the rest of the national debt. As long as Congress kept spending at 98% of tax collections the government could probably meet all of it's unfunded liabilities indefinitely.

cubanbob: Cash: so the fed ... (Below threshold)
bryanD:

cubanbob: Cash: so the fed is inflating the money supply in order to put an appropriate figure in the ledger. So the hallowed consumer has to pay a tad more since our money is worth that much less, being mathematically de-valued by the Fed, which then gets to charge interest on the "loan" (their handling fee) to the government. Yet the premium on the "loan" for the war is not being paid, only the INTEREST and the DEBT keeps growing. Who keeps this boondoggle afloat?

I said, While you have a... (Below threshold)
Brian:

I said, While you have a surplus, the debt decreases.

Excuse me, I should have said the "principle on the debt" decreases. Of course, we're still paying interest on the debt, which can make it continue to grow if the interest incurred is greater than the principle paid off by the surplus.

Since the national debt rose even in those wonder years, your premise is wrong.

No, you just apparently didn't understand. Hopefully my clarification above makes more sense to you.

Brian, it's simple. There h... (Below threshold)
Scrapiron:

Brian, it's simple. There has not been a surplus since the governent began deficit spending and there will not be one in the future unless there is a strict law passed that the congress can't spend 'as much' as it takes in. When the national debt reaches '0' and there's money left over there could be a surplus, but they will spend in on something. There will only be smoke and mirrows. That's why the dhimmi's are in a rut to raise taxes by leaps and bounds. They have to pay off their campaign contributors.

A rut is when an animal is in heat and the males go crazy chasing the females. The dhimmi's are in heat for money and nothing will stop them.

There has not been a sur... (Below threshold)
Brian:

There has not been a surplus since the governent began deficit spending

Wow, I know you are delusional, but at least try to choose statements that aren't so easily thrashed.

The great comedy from the right continues!

Brian wake up and smell the... (Below threshold)
cubanbob:

Brian wake up and smell the coffee. The US government has not had a real surplus since before the social security act and until the provision of that act that requires social security trust funds be reinvested in special US government debt instruments. Incidentally this was a Republican idea as a least worst measure of keeping the feds from buying up Wall Street. And like any other government bond it has to pay interest. The interest accumulates and roles over into debt that is at some point supposed to be paid back by the treasury to the social security trust fund. A liability is a debt. At some point in the near future the government is going to start massive borrowing to pay back the loans to the social security administration trust fund when when demographics are such that the s.s trust fund no longer has an operating cash surplus. A deferred debt is still a debt.

Now that gives the government several options:
1-cut benefits and increase the retirement age.
2-raise the payroll tax rate and the maximum income level which s.s taxes are levied. This year the cap is 97 thousand but the maximum benefit is the same as before. Take the current 6.2% x 2 (employee and employer) it becomes rather obvious that at the 60 grand level paying 14.4% to the s.s "insurance fund" is a loser when you figure the monthly benefit level as opposed to investing the same amount of money at a 5% return. Why do you think 401k plans and IRAs exist? It's the government's way of telling people who actually earn middle to upper middle class incomes your on your own, don't count on social security.
3- do the clean and honest thing and cancel the debt to the social security fund, that will cut the national debt almost in half overnight, and finance the benefits out of the general fund. Social Security is a universal welfare scheme for the elderly that has always been paid on a pay as you go basis. It's time to stop the fraud of pretending it's an insurance annuity and treat it for what it is.

bryanD what your muttering makes no sense at all.
The government spends cash. It can't spend what it doesn't have unless it borrows money from someone.
Lenders demand interest on their money, otherwise they would equity partners in the enterprise. The government is not a corporation so it can't have equity partners. Now if you want to be a sport and loan your money to the government interest free by all means do so. The US is part of the global economy, the Fed alone cannot set interest rates long or short, the financial markets do so. It can only set short term rates for a brief period of time at best. As long as there is borrowing the government has to ultimately pay market rates for the risk level it is selling otherwise there will be no buyers. The only way to stop interest debt accumulation is to stop borrowing for everything from the war to farm subsidies, aids research, welfare and so on. Cut enough to balance the spending to the cash collected. There is no other way.

cubanbob, you said "It can'... (Below threshold)
bryanD:

cubanbob, you said "It can't spend what it doesn't have unless it borrows money from someone."..."the Fed "ALONE" cannot set interest rates long or short, the financial markets do so"....Why not issue Treasury Notes instead of Federal Reserve Notes, i.e., pay interest to ourselves,i.e. service our own debt; no middle man; a governmental 401k-type plan? (Please think outside the box this time)

The federal government r... (Below threshold)
Larkin:

The federal government runs on a cash basis, not on an accrual basis so bryanD is fundamentally wrong.

Cubanbob is spot on here. The deficit numbers the government releases are based on cash accounting rather than accrual accounting. Only the very smallest of business are allowed to use cash accounting because it provides a misleading picture of the financial health of an enterprise.

For example, nowhere in the government's deficit figures do you see an allocation for the future expense of billions of dollars that we will have to make providing medical care, physical therapy and rehabilition to the tens of thousands of soldiers from Iraq who have been wounded, maimed or otherwise injured (including PTSD).

Any American business would have to list such an expense on its income statements. In the real world, there is no way you can "pretend" that you haven't incurred these types of future liabilities.

So, the bottom line is the deficits based on accrual accounting would be far larger than what the government publishes. Some analysts estimate that the true cost of the Iraq War will be upwards of $1 trillion dollars. Our children are going to be paying for this debacle for decades to come.

The deficit declined unt... (Below threshold)
John:

The deficit declined until it disappeared, after which there was a surplus. While you have a deficit, the debt increases. While you have a surplus, the debt decreases
Brian/ January 17, 2007 04:25 PM

Brian perhaps you can explain to us just where did the social security administration "invest" the surplus cash during the two Clinton wonder years? Since the national debt rose even in those wonder years,
cubanbob/ January 17, 2007 05:09 PM

Actually, both of you are right. Debt held by the public fell during the years of budget surpluses and intragovernmental debt rose during those same years. The surplus SS revenue was used to pay down debt held by the public which increased intragovernmental debt. That increase in debt was matched by an increase in the assets of the SS trust fund (a wash).

The deficit numbers the government releases are based on cash accounting rather than accrual accounting....the bottom line is the deficits based on accrual accounting would be far larger than what the government publishes.
Larkin/ January 18, 2007 04:28 AM

The government uses both accounting methods. It is not some big secret. See the FY 2006 Financial Report of the United States Government.

John a good point but only ... (Below threshold)
cubanbob:

John a good point but only if the SS trust fund is holding real, negotiable and discountable debt obligations. There are not according to the Supreme Court. Congress can in principle annul the the trust fund and therefore the obligation on the treasury. Indeed it could also repeal social security.
The trust fund assets are to use a simple analogy an IOU to yourself.

Larkin is correct. However the obligation (veteran care to Iraq combat injured troops) is no different to that of any similar obligation the government imposes on itself, be it disability payments to other federal workers or medicare among other things.
The liability is only enforceable as long as the government agrees to honor the commitment. Unlike a private party prevailing in a lawsuit using the power of the government to enforce the collection, the government cannot ultimately be compelled to collect against itself. In essence while the true magnitude of the future obligations to Iraq combat veterans is potentially enormous, it is nothing compared to the pension fund guarantees, social security guarantees, FREDIE MAC/FANNIE MAY guarantees among others. They are both real and not real at the same time which is a paradox of government obligations. They are only real until a future Congress in essence declares them an odious debt. A reality check is the recent example of the Argentine government repudiating a large part of it's foreign debt.

bryanD if I follow your point the trick your trying to game is having the government pay it's obligations above and beyond the cash it has collected in taxes with a treasury note. Unless the note is fully redeemable in federal reserve notes (cash)it would be the same as monopoly money. Interest is rent on money, no different in principle to rent on any other asset. Although without meaning too, you have described perfectly the assets of the social security trust fund. Utterly worthless unless future taxpayers choose to make it good.

cubanbob, You can'... (Below threshold)
John:

cubanbob,

You can't have it both ways.

If you think the trust fund and its corresponding intragovernmental debt are not real, then you can't say debt rose during surplus years. The only debt that grew was intragovernmental debt. If it is not real debt, then you can't say "the national debt rose even in those wonder years".

Just so you know, you can a... (Below threshold)
Jacob Leopold:

Just so you know, you can access those WSJ articles for free with a free netpass at: http:www.congoo.com/netpass/install




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