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Home :  Federal Budget & Tax : 
Federal Budget & Tax:      News     Blog     Background    



Wednesday, June 29, 2005

Smaller Deficit Could Lessen Pressure For Fiscal Discipline

Congressional observers and Wall Street analysts have once again projected down the U.S. fiscal deficit for 2005, with some believing the deficit could be almost $100 billion smaller than the White House's initial projection from January of $427 billion. Increased tax receipts and stronger than projected economic growth have contributed to the smaller deficit projection. Through May, receipts have increased 15.5 percent as compared to the same period in 2003, outpacing a 7.1 percent increase on the spending side, and the economy grew at a rate of 3.8 percent in the first quarter of 2005.

Yet the lower deficit projection is hardly news for celebrating. Even $325 billion - the low mark for projections - would be the third largest deficit in history (the two others, incidentally, were in 2003 and 2004). And despite the better economic numbers, deficits are projected to remain for decades.

The Bush administration has hailed the smaller projections as good news and says it is part of the plan to cut the deficit in half by 2009. What the administration does not say, however, is that after 2009, if current policies stay in place, the deficit will start to rise again. The government is currently running a structural deficit, meaning that no matter how larger our economic growth becomes, the current tax code will not be able to bring in enough revenue to pay for current programs, policies, and priorities. This is due to a lack of a long-term outlook for fiscal planning in the government and lack of discipline among the GOP in Congress to resist yet another round of unpaid-for tax cuts. This trend continues to be troubling.





Posted by Adam Hughes, 11:07:19 AM



Tuesday, June 28, 2005

Bank of International Settlements Issues Warnings in Report

The Bank for International Settlements released their annual report yesterday. In the report (see also a summary), they issued warnings on economic imbalances, the U.S. budget deficit, and dollar depreciation.

The report found that the world economy is marked by increasing internal and external economic imbalances. These imbalances raise serious questions about future global growth and financial stability. The report said, "One simply cannot ignore the number of indicators that are now simultaneously exhibiting marked deviations from historical norms," and went on to warn that the U.S. budget deficit was an increasing concern of global importance. The report basically stated that without any sort of budgetary discipline, the continued decline of the U.S. dollar against other currencies appeared "inevitable."

The report also stated that the U.S. deficit "expanded to a record high as a proportion of GDP [almost 6%], and this in spite of a reduction in the effective real value of the dollar of more than 20% from its peak in early 2002.... It is unprecedented for a reserve currency country to have a current account deficit of such magnitude." The high deficit has resulted in the global financial system seemingly becoming increasingly prone to various sorts of financial turbulence. The Bank of International Settlements is warning Bush and Congress that if deficits continue to rise, there could be serious consequences. Given the current fiscal health of the U.S. economy, now is not the time for Congress and the President to be considering any extremely expensive legislation, without figuring out a way to pay for it.





Posted by Becky Lewis, 11:42:03 AM



Tuesday, June 21, 2005

House Leads Senate in Work On Approps Bills

While the House is set to finish work all eleven House spending bills by the end of this month, there is pressure on the Senate to figure out a floor strategy to avoid the unruly process that characterized last year's spending negotiations. Next week the Senate is scheduled to work on the Interior-EPA and Homeland Security bills, but after the July Fourth recess the appropriations schedule remains uncertain, according to leadership and committee staff.

This Washington Post article from yesterday looks in depth at the Appropriations Chairman - Sen. Thad Cochran (R-MS) and Rep. Jerry Lewis (R-CA) - and what they are hoping to accomplish during this appropriations cycle.





Posted by Becky Lewis, 01:05:19 PM



Friday, June 10, 2005

Smith and Conrad Unveil Retirement Savings Bill

Sens. Gordon Smith (R-OR) and Kent Conrad (D-ND) announced yesterday their plans to introduce a Retirement Savings and Security Act, which they could unveil as early as next week. The purpose of the bill is to promote automatic enrollment of workers into company 401(k) plans, in order to minimize the risk of future generations outliving their retirement income. The bill could possibly produce 5.5 million new 401(k) participants over the next five years. The bill would also make changes to the saver's credit, a tax credit for low- and moderate-income workers who contribute to retirement plans and IRAs created under the Economic Growth and Tax Relief Reconciliation Act of 2001. Conrad said, "We think this can and will be passed this year."





Posted by Becky Lewis, 11:39:41 AM



Thursday, June 09, 2005

Tax Policy Should Not Cater to the Wealthy

This June 7 editorial in the New York Times - The Bush Economy - is extremely pertinent to some of the tax reform legislation being considered by Congress right now. The article points out that if all of Bush's tax cuts are made permanent, in ten years people making between $100,000 and $200,000 will pay five to nine percentage points more of their income in federal taxes than those making over $1 million per year. Those making less than $80,000 per year will see their share of taxes rise slightly or stay the same.

As the article says, at this level the tax cuts are about "giving more money to those who have nothing to do with it except amass enormous estates for their heirs." And some of the current legislation being considered by Congress is unfortunately not helping us move in the other direction.

Many Senators, from both sides of the aisle, are currently focusing a good deal of time to discussions on reforming both the estate tax and the alternative minimum tax (AMT). Repeal of the estate tax, which passed the House but most likely doesn't have the 60 votes needed in the Senate, would cost close to a trillion dollars in lost revenue over ten years. (Irresponsible reform could be almost as damaging.) Repeal of the AMT - rather than reform to make the tax more fair - would add nearly $1.2 trillion to deficits and the federal debt over the next ten years, assuming the tax cuts are made permanent.

Lawmakers seem to be jumping at the chance to "fix" fairness issues in our tax system by looking to repeal the estate tax and the AMT. However, these reforms would only further protect the super-wealthy in our society from paying their fair share of taxes, and would leave more of the tax burden on everybody else. Congress should be looking for ways, instead, to raise revenues and constrain spending in order to bring down these unsustainable deficits; which, in the long term, will not only worsen our fiscal situation, but will worsen it disproportionately for the bottom 90 percent of taxpaying Americans.



Posted by Becky Lewis, 11:14:19 AM



Monday, June 06, 2005

The Rich Are Getting Richer

Click here for a great article in yesterday's New York Times about the growing gap in wealth between the richest and the poorest in our society. The very richest are getting richer, while everybody else is left to split the rest of the pie. In the meantime, the Alternative Minimum Tax (which does not affect the super-wealthy as much because it doesn't tax dividends and investment gains) is affecting a greater percentage of the "middle chunk" of the population more every year. The result is that the wealthiest in our society pay far less of a percentage of their income in taxes than the middle - and even moderately wealthy people - do. This article includes some very interesting charts and statistics on wealth trends in this country, and is worth a read.



Posted by Becky Lewis, 05:22:44 PM



Job Growth Lags in May

On Friday the Bureau of Labor Statistics reported that the nation's payroll only expanded by 78,000 in the month of May. This was 100,000 jobs below the expectations of jobs forecasters. This downward trend in May was coupled with other weak economic indicators including continued slow wage growth, losses in manufacturing, and ongoing high levels of long-term unemployment. Despite this low-level of job-growth, unemployment did dip down slightly, from 5.2 percent to 5.1 percent.

Since May 2003, job growth has averaged 147,000 jobs per month. This level, according to the Economic Policy Institute, is enough to sustain the economic recovery, but the overall pattern of job creation over the past two years "suggests that a convincingly strong labor market recovery has yet to take hold." The Center for American Progress notes in this report that no American President since the Great Depression has, until now, sustained a net loss in private-sector jobs 52 months into their presidency.

For more information, click here.





Posted by Becky Lewis, 04:28:40 PM



Wednesday, June 01, 2005

Keeping The Focus on Economic Policy

Center for American Progress' John Irons recently wrote an interesting column describing various important budget and economic issues we are currently facing such as the estate tax, entitlement and discretionary cuts, and the cutting of health care for low-income earners. Irons' column suggests that while the fight to save Social Security is important, it is perhaps a tactic being used by the administration to shift some focus and attention away from important budget and economic issues, and on to Social Security. The column can be read here.



Posted by Becky Lewis, 04:30:23 PM




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