NCPA - National Center for Policy Analysis


February 6, 2008

Federal Spending: The ink isn't even dry, but already the squawking can be heard about President Bush's new five-year budget plan and the "exploding" deficits it contains. As usual, it's much ado about nothing, says Investor's Business Daily (IBD).

Those who worry about the deficits of $409 billion and $407 billion expected for 2008 and 2009, respectively, should put things into perspective:

  • Those deficits will amount to about 2.9 percent and 2.7 percent of gross domestic product (GDP), up from about 1.2 percent this year, but about in line with the average -- 2.6 percent -- since 1980.
  • If you take those projections seriously, then you have to look at what is predicted for the outlying years as well; the Bush budget plan sees not only the budget deficit shrinking but disappearing and going into surplus by 2012.

Also, many things can happen between now and then:

  • For instance, Congress' failure to address our looming entitlements crisis, something that President Bush has brought up repeatedly only to be rebuffed, almost certainly will create a true fiscal crisis sometime in the next decade -- one that won't be papered over by one-time tax hikes, or bogus "spending cuts," or reductions in defense, or even the complete elimination of earmarks.
  • Moreover, Congress might decide not to make Bush's tax cuts permanent, hitting the average taxpayer with a $1,800 tax hike in 2011 -- enough to sink the economy and drag down government revenues for years to come.

Given this, we should not be concerned about the deficits over the next two years, says IBD.  They're a short-term problem, the result of two things:  One, a forecast slowdown of economic growth; and two, a badly needed ramp up in defense spending, which will rise about 7 percent next year.

Source: Editorial, "For Now, Don't Sweat The Deficits," Investor's Business Daily, February 4, 2008.


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