Debt & Taxes (on Shrub's budget)

[reprehensor]

Debt & Taxes

The long-term insolvency of President George W. Bush’s budget strategy is obscured by outrage -- otherwise justified -- over gratuitous and spiteful spending cuts. These cuts are real enough, but they are the battle the Bush administration would prefer to fight. To an important extent, the cuts are targeted at politically vulnerable populations. What the administration would prefer we ignore is the longer-term unsustainability of their policies, which also endanger our largest, most important, and popular entitlement programs.

The fundamental problem is that federal revenues now are below 17 percent of the gross domestic product; since 2003, that proportion has been at its lowest since the 1950s. At the same time, total outlays are over 20 percent of GDP. That gap of three percentage points is sufficient to cause federal debt to rise more rapidly than GDP itself, generating a rising debt burden.

The simple arithmetic: Debt as a share of GDP is now 38 percent. With the Congressional Budget Office’s projection of 4.8 percent growth over the next 10 years, an acceptable sized deficit would be 1.8 percent of GDP (less, if you like a little margin of safety). Three percent or even two percent of GDP is too high, unless you’re staring a recession in the face. For fiscal year 2005, the projected deficit is 3.5 percent of GDP.

snip

...the longer we wait, the more the problem worsens with ongoing Bush administration initiatives. Their budget problem is also their policy. They anticipate it getting worse for good reason. A crisis, notwithstanding his own role in provoking it, is the president’s best argument for shrinking the size of government.

more@link