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A New Yorker cover from April 2000, when surpluses grew on trees

Gloating in Debt
Bush’s Deficit Fog

When the only way to go is up, it’s easy to make things look rosier than they are. But two things about pink: It’s still a derivative of red, whether we’re talking blood or red ink.

Let’s say insurgent attacks in Iraq were to decline from about 90 a day in the last few months to 70 a day in the next few (summers can be hot in Mesopotamia ). Well, now. That’s almost a 25 percent decrease. Never mind that it’s just a retreat back to the number of daily attacks in 2004, or that it’s still 70 attacks a day more than in 2003, before the American occupation, or that the civilian kill rate, which has been increasing exponentially to about 50 per day, is unrelated to the number of insurgent attacks (government-backed death squads, anyone?). When things go catastrophically wrong on your watch, you have all sorts of options to make the slightest improvement look like vindication for your policies, however catastrophic they remain.

We’re used to the Bush administration playing that sort of crooked game in Iraq . Get ready to see the method applied on the federal budget deficit.

On Friday, the Congressional Budget Office announced that tax receipts this year are running $206 billion ahead of last year. On Saturday, President Bush in his radio address credited his tax cuts for the economy’s strengths. “So,” he said, “I will continue to work with Congress to make that tax relief permanent.” On Sunday, The New York Times gave the “unexpectedly steep rise in tax revenues” lead-story treatment. Today, the White House is scheduled officially to announce that the deficit in 2006 will decline to $300 billion, from its all-time high of $412 billion two years ago. The deficit will fall despite the $120 billion-a-year “war on terror” and spending related to Hurricane Katrina.

Leaking boasts, the White House is already claiming victory for Bush’s serial tax cuts and chattering as if a central tenet of supply-side economics (cutting taxes increases tax revenue) was more gospel than voodoo. But while increasing tax revenue is better news than we’ve been used to, it’s next-to-irrelevant news when you look past the administration’s short history of itself—or even when you look closer at some of its own numbers.

Corporate tax revenue is expected to total $330 billion this year, a $52 billion, or 18 percent, improvement over last year. The administration is pointing to that figure as vindication for its tax cut on capital gains and dividends, now supposedly helping to shrink the deficit. But in 2003 corporate tax revenue had fallen, relative to the size of the economy, to its second-lowest rate in half a century (the lowest rate was in 1983, when Ronald Reagan was digging the nation’s first deficit abyss). Having so much ground to recover, the only way it could go was up, fast. Rise as it may to match the rate of the 1990s, it’ll still be well below what it was in the 1960s and 70s.

What’s making up the difference? The payroll tax for Social Security and Medicare, imposed on the first $94,200 of income: The poor and the middle class feel it, the rich don’t. As a share of the economy, the tax has more than doubled since 1962, from 3 percent to 6.5 percent. The corporate tax has gone the other way, from 3.6 percent to 2.3 percent. This year alone, social insurance taxes will bring in two-and-a-half times more revenue than corporate taxes, with a projected year-over-year increase of $56 billion, all of which is supposed to go into the Social Security Trust fund, all of which will instead go toward masking the real size of the budget deficit—the deficit the administration says is declining.

Don’t believe it. Without the huge and continuing rise in the Social Security surplus in the Bush years, the deficit would have clocked in at just under $500 billion last year, and it won’t be much lower than that this year, which explains the national debt rising almost $2 trillion during Bush’s first six years—the fastest rise of any administration in history, Reagan’s go-go debt years included. The federal government has to pay interest on that debt -- $184 billion of your tax dollars last year, or more than all war and Katrina spending combined going to banks in China , Saudi Arabia , Japan and Europe . That’s the real outsourcing of the American economy.

Meanwhile, the wage improvements for the typical American of the late 1990s have been replaced by decline or stagnation for all except the richest. Staggering personal debt and negative savings, like the national debt and the running deficit, are the only preservatives of an untenable national standard of living. Borrowed money, borrowed time: Bush boasts as a red tide lifts all boats.

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One point of curiosity, which amazes me, is the fact that Bush and company are hawking his tax cuts as a reason for the brighter than expected economy, and no economics people have made even the slightest mention of the effect of deficit government spending on the GDP.  According to Keynesian models, GDP would rise by about a 6 to 1 ratio for every dollar the government borrows and spends.  Keynes theories and models are accepted by many economics experts, and his basic theory of regulating the economy by taxing the booms and using deficit spending to boost the economy during slowdowns is sound.  Without the 3-400 billion deficits, GDP would be 1.8 - 2.4 trillion lower.  That would be recession and negative growth.

Wasn't it earlier this year when corporations were able to repatriate their overseas profits at a lower rate? That would be the explanation, and as I understand it, it was a one-time deal. So.
Tom Marshall

I thought many of these corporations would be socking away their profits in their offshore tax havens rather than letting Uncle Sam get as big a cut of it as possible. China must be the biggest foreign beneficiary of Bush’s economic policies, and it’s doing it without having to be bogged down by a couple of unsuccessful wars.
Chohong Choi
Hong Kong

Sorry, not one of your better pieces - your normal clarity seems to have deserted you. The leading reference to Iraq was not a good idea. Better luck next time, from a fan,
Ezra S Abrams
Newton, Mass.

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