2006 August 20 Sunday
US Government Deficit Scheduled To Rise

The US government's deficit looks set to start rising again.

A surge of unanticipated tax receipts will push this year's deficit down to $260 billion, a $58 billion improvement on last year's red ink. But the deficit will begin to rise again next year and will improve substantially only if President Bush's tax cuts are allowed to expire, the Congressional Budget Office said yesterday.

Come the 2010s and the retirement of the baby boomers will send the deficit soaring.

The budget office's figures provide ammunition for both sides. This year's deficit is not only projected to be lower than last year's, despite ongoing war expenditures and hurricane relief, but it is also $112 billion lower than the CBO estimated in March when it analyzed the president's budget proposals. Even after successive waves of tax cuts, tax revenue is rising faster than predicted, while spending, especially on Medicare and Medicaid, has been less than initially projected. The near-term budget picture "has improved significantly," analysts with the budget office concluded.

But the longer term outlook -- clouded by baby boomers who will be retiring just as the reach of Bush's tax cuts begins to expand -- has "not changed materially," the report emphasized.

This year's $260 billion deficit is projected to rise to $286 billion next year and $328 billion by 2010, only to plunge when the tax cuts expire in 2011.

Higher taxes? Cuts in retirement entitlements programs?

Update: The US government's financial state is far worse than a cursory glance at the current deficit and current debt would suggest. The reason? Unfunded liabilities. These are promises to pay future benefits using money that exceeds what the government can expect to collect in taxes. See my posts On The Medicare And Social Security Unfunded Liabilities, Social Security And Medicare Headed For Bankruptcy Sooner, Taxes For Aging Population To Trigger Political And Economic Death Spiral?, and Audited Financials Show Larger US Government Debt.

Share |      By Randall Parker at 2006 August 20 11:55 PM  Economics Government Costs


Comments
Wolf-Dog said at August 21, 2006 6:59 AM:


What really matters is the ratio of the total government debt to the GDP.
Please see the following chart of the long term graph of National Debt divided by GDP:
http://zfacts.com/p/318.html

The chart above says that during the last two decades, the total government debt is NOT increasing too fast, if the growth of the GDP is taken into account. In fact, we can safely say that IF the annual government debt falls below the annual growth of the GDP for an extended period of time, then the relative money supply would be in danger of not increasing sufficiently (or even to collapse).

Thus the current rate of government deficit spending is not too inflationary. What IS very inflationary, is the foreignt trade deficit, which is increasing MUCH faster than our GDP. In fact, it is precisely the foreign trade deficit that poses the real danger, not the government deficit spending (if we keep the government deficit spending growth proportional to the GDP growth.)

Randall Parker said at August 23, 2006 5:08 PM:

Wolf-Dog,

The US government has taken on huge unfunded liabilities that do not show up as issued debt. So the financial balance sheet is far worse than it looks at first glance.

Wolf-Dog said at August 24, 2006 12:29 AM:

Randall Parker:
"The US government has taken on huge unfunded liabilities that do not show up as issued debt. So the financial balance sheet is far worse than it looks at first glance."
----------------------------------------------------------------------------------------

Are there some numerical estimates about how many dollars per year this "unfunded liabilities" might be?

Can you also explain how exactly this unfunded liability type spending being done by the government?

Randall Parker said at August 24, 2006 6:36 AM:

Wolf-Dog,

Unfunded liabilities: Look at the "Update" I did to the post above. Go read my older posts that I link to in that update. I discuss the unfunded liabilities in some detail in those posts.


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