Washington shelved report of 44-trillion-dollar deficit

[The Evil Genius]

Washington shelved report of 44-trillion-dollar deficit

LONDON (AFP) - In the midst of negotiating a steep tax cuts package, the US government shelved a report that showed the United States faces future federal budget deficits of more than 44.2 trillion dollars.

President George W. Bush's administration chose to keep the findings -- commissioned by then-Treasury secretary Paul O'Neill -- out of the 2004 annual budget report, published in February, London's Financial Times reported.

The newspaper desribed the study as "the most comprehensive assessment of how the US government is at risk of being overwhelmed by the 'baby boom' generation's future healthcare and retirement costs."

The Financial Times hinted that the decision not to publish the report may have been because the White House was campaigning for a massive tax-cut package that critics claim will expand future deficits.

The study, according to the same source, said that sharp tax increases, massive spending cuts or both are unavoidable if the US is to meet benefit promises to future generations.

"It estimates that closing the gap would require the equivalent of an immediate and permanent 66 percent across-the-board income tax increase," the Financial Times said.

"The study was being circulated as an independent working paper among Washington think-tanks as Bush on Wednesday signed into law a 10-year, 350-billion-dollar tax-cut package he welcomed as a victory for hard-working Americans and the economy," the newspaper said.

Kent Smetters, then-Treasury deputy assistant secretary for economic policy, and Jagdessh Gokhale, then a consultant to the Treasury, were in charge of the analysis, the newspaper said.

"When we were conducting the study, my impression was that it was slated to appear (in the budget). At some point, the momentum builds and you think everything is a go, and then the decision came down that we weren't part of the prospective budget," Gokhale was quoted a saying in the front-page article.

O'Neill, who was fired last December, refused to comment, according to the same source.

The Bush administration has come under severe criticism for the tax cuts package, which come on top of a 10-year 1.65 trillion tax cut program enacted in 2001, at a time when the US economy is sputtering and unemployment is steadily rising.

[jbooma]

wasn't the 44 trillion number created from the result 75 years from now? I read the same article on MSNBC.com and it mentioned the length of time.

[AJWatson3]

well, if it is 75 years from now Top Gun won't give a ****, because all he cares about it getting re-elected in 2004. and his family will all be rich anyways, so he has no worries.

[jbooma]

all the money we make off the Iraq oil will pay it off, genius,

[gbear]

Like I said, I've been against the tax cut from the beginning because I'm not in favor of barrowing from my children.

The 44 trillion number is scary.

However, there are some mitigating factors. So long as our economy keeps growing, we can apply the rule of 72. That is if you take 72 and divide it by the percentage growth(expressed as a real number) you can see the number of yearsit will take for our economy to double. This will shrink the debt to GDP ratio.

Of course, that assumes our economy keeps growing and that there isn't a crouding out effect from too much gov debt. 44 trillion is also a huge number.

Other options include drastically changing the services provided by our gov. I've also been saying for quite some time that I suspected this was the real goal of this administration. Make it impossible to keep our services. Some on here are all for that, but I wonder if ending social security could ever win a straight vote? I know it would surprise many on here, but I'd be all for drastically overhauling SS to the point where it reverted back to the safety net it was originally intended to be. Medicare is going to be a huge problem though.

[Funkyalligator]

Wow....the White House hiding reports that might hurt them....this comes as such a shocker!!!! My god are they being underhanded....of course, what do you expect from politicians especially ones so closely connected with big business.

[fansince62]

what's the problem? reduce benefits, cut back on all the other unproductive social programs....oh that's right....we all have to agree on this......

[Riggo-toni]

A Few Points:

1) The Dollar Amount of Federal Debt is not important; rather it is the ratio of debt to GDP. This is the most accurate measure of the actual burden of servicing the debt. For example, in dollar terms, the debt in the 40s would seem inconsequential today, while today's debt would seem enormous 50 years ago. Yet in the 40s, the debt was almost equal to around 90% of US GDP (or what was then measured as GNP), whereas by the end of the 90s it was down to about 50%. Let's say that our total debt increases by 1% every year, but our economy grows at 3%. Eventually, the debt becomes alomst inconsequential. Think of it this way - is it easier to make credit card payments on a balance of $2,000 when your salary is 25k, or payments on a balance of $5,000 when your salary is 100k?

2) The biggest cause of the projected deficits is ballooning spending, which began after congressional Republicans abandoned fiscal discipline following setbacks in the 98 election. Bush's current budget I have heard is already 50% bigger than the budget in Clinton's last year. He signed the most bloated agricultural bill in history, completely undoing all the reforms of the 90s. Granted, some additional spending is certainly necessary in light of the war on terror, but outlays over the past 5 years have gone wayyyyy past that! Until voters finally wisen up again and begin voting in candidates who are proponents of fiscal discipline (as we did briefly in the mid-90s), no solution to our debt will emerge, regardless of how much we tinker with the tax code.

[Art]

What amuses me is people who are appalled by deficits yet want not a single dollar cut from government spending. I'm for tax cuts and spending cuts. I also find it interesting that the $330 billion tax cut just passed is over 10 years. Over the same 10 years the Federal Government projects to spend some $24 or more TRILLION dollars.

Wow. That's a massive tax cut alright .

[codeorama]

I say we keep the FIFTEEN BILLION from going to the African Warlords and use some of that money for ourselves.

[The Sisko]

Though I voted for W, this type of thing worries me. I like the tax cuts...who wouldn't ? However, if he doesn't follow up on the tax cuts with spending cuts we may be in for real trouble.

You make some very good points Riggo Toni, however relying in the economy to grow at "x" rate is something of a "pig in a poke". What if our growth rate stays at or near the current level for a relatively long period of time ? What if deflation sets in as it did in Japan ?

The tax cuts need to be followed up with some hard decisions about reducing spending. Unfortunately, I don't think W is up to that side of things.

[The Sisko]

Sorry Code, I hate to burst your bubble but Israel and Egypt (and by extension, this is money paid on behalf of Israel as a bribe for signing the peace accord with the Israelis) are the two largest recipients of US foreign aid and have been for years.

http://sptimes.com/2002/02/10/news_pf/Columns/What_is_America_getti.shtml

[codeorama]

Originally posted by Yusuf06

Sorry Code, I hate to burst your bubble but Israel and Egypt (and by extension, this is money paid on behalf of Israel as a bribe for signing the peace accord with the Israelis) are the two largest recipients of US foreign aid and have been for years.

http://sptimes.com/2002/02/10/news_pf/Columns/What_is_America_getti.shtml

It doesn't burst my bubble, I wasn't aware of it but it doesn't suprise me.

Question... What do we owe Israel? It seems like we are always covering for them or supporting them and turning the other way while they have nukes... I'm not sure I understand our relationship with them.

[Riggo-toni]

Originally posted by Art

What amuses me is people who are appalled by deficits yet want not a single dollar cut from government spending. I'm for tax cuts and spending cuts. I also find it interesting that the $330 billion tax cut just passed is over 10 years. Over the same 10 years the Federal Government projects to spend some $24 or more TRILLION dollars.

Bingo!!! This is what I was trying to point out in my post. Thanks for supplying more exact long term figures.

[codeorama]

I would say cutting spending should be a priority.

I'm sure if we had a detailed list of where the money really goes, it would piss the heck out of us.

[Riggo-toni]

Originally posted by Yusuf06

Though I voted for W, this type of thing worries me. I like the tax cuts...who wouldn't ? However, if he doesn't follow up on the tax cuts with spending cuts we may be in for real trouble.

You make some very good points Riggo Toni, however relying in the economy to grow at "x" rate is something of a "pig in a poke". What if our growth rate stays at or near the current level for a relatively long period of time ? What if deflation sets in as it did in Japan ?

The tax cuts need to be followed up with some hard decisions about reducing spending. Unfortunately, I don't think W is up to that side of things.

I agree with all your points Yusuf. I guess one point I failed to articulate was that trying to reduce the debt level through tax increases can potentially be counterproductive because of economic side effects. The indicator we should monitor most carefully is whether the debt to GDP ratio is growing or shrinking. In reality, all of these long term projection numbers are practically meaningless, because it is simply impossible to factor in all the potential pitfalls or windfalls. The mismanagement of State governments should give us pause regarding the dangers of living high off the hog during the good times.

[Golgo-13]

I say we raise taxes to 80% to pay for a bunch of programs that suck. I HATE my paycheck anyway, I really want to give it back to the government as quickly as I possibly can.

[Larry]

I've been admiring watching the R's explaining why, when we're talking about the federal budget, it's not fair to refer to budget cuts (just because the spending per person went down), because as long as the number in dollars is bigger than last year, then it's an increase.

But, if you're talking about an increase in the defecit (and the usual excuse of pointing at whichever branch of givernment isn't controlled by their party, and blaming them, won't work), then suddenly the only reasonable way to discuss it is to index it to something else.

[Atlanta Skins Fan]

Originally posted by Larry

I've been admiring watching the R's explaining why, when we're talking about the federal budget, it's not fair to refer to budget cuts (just because the spending per person went down), because as long as the number in dollars is bigger than last year, then it's an increase.

But, if you're talking about an increase in the defecit (and the usual excuse of pointing at whichever branch of givernment isn't controlled by their party, and blaming them, won't work), then suddenly the only reasonable way to discuss it is to index it to something else.

Larry, you need your own news program:

"Cut the Crap! Larry's Straight Sh!t on the News"

[NavyDave]

Yawn!!!

Some how a miniscule tax cut is gonna wreck us when not too long ago I heard no outcry on the ridiculous amount of spending in the Education bill written by Ted Kennedy which is the most every spent and we are still hearing the sniveling about how there is no money for the children or schools yet spending goes up annually.

Lets hear a democrat with b@lls come out for once and honestly say they are for raising taxes because that will help the economy and entice consumers from hoarding money and spend it instead.

Yeah those tax hikes in NYC are sure gonna convince businesses to puirchase or lease property there instead of the cheaper New Jersey

[Art]

Larry,

What you just said is a lie I believe. Please show where per capita government spending is decreasing. The overall government budget is increasing nearly, what, 7 percent. It would be highly impossible given ANY increase above inflation for the per capita spending to decrease, unless there's been another baby boom no one told me about.

[The Sisko]

Lets hear a democrat with b@lls come out for once and honestly say they are for raising taxes

It's been tried already. Ask old Walter Mondale what he thinks of that strategy.

[The Evil Genius]

Originally posted by Art

Larry,

What you just said is a lie I believe. Please show where per capita government spending is decreasing. The overall government budget is increasing nearly, what, 7 percent. It would be highly impossible given ANY increase above inflation for the per capita spending to decrease, unless there's been another baby boom no one told me about.

Depends on if you want to view it in current dollar values or not.

By my crude estimates, per capita spending has increased from the previous year by the following...

1997 0.69%

1998 3.15%

1999 0.63%

2000 3.88%

2001 10.13%

If you bring all the expeditures to 2001 dollars, though, it looks like this per year increase/decrease...

1997 (1.56%)

1998 1.60%

1999 (1.58%)

2000 0.53%

2001 7.09%

Again, those are crude stats taken from the Census - just divided total expenditures by population - then factored in what the value dollars in previos years would have been in 2001.

Anyways...was fun looking it up. I am sure there are some fatal flaws in those stats...I am a bit rusty when it comes to inflation.

[The Evil Genius]

Just a followup - White House staff is denying the "shelving"...

White House Denies Shelving Budget Deficit Warning

By Jonathan Nicholson and Randall Mikkelsen

WASHINGTON (Reuters) - The White House on Thursday denied suppressing a report that projects the U.S. government faces a long-term budget deficit of more than $44 trillion.

White House Budget Director Mitch Daniels said the allegation was "probably the most absurd thing that I can imagine."

However, he said the looming costs of Social Security (news - web sites) and Medicare, which make up most of the forecast gap between government income and spending, were an important issue.

"This is a very legitimate point," he said.

The administration was responding to a front-page report in Thursday's Financial Times saying the White House kept the findings out of its annual budget blueprint in February while it prepared to lobby for a new round of tax cuts. Bush signed $350 billion in tax cuts into law on Wednesday.

The newspaper also said the study was commissioned by ex-Treasury Secretary Paul O'Neill and written by Jagadeesh Gokhale, a senior economic advisor with the Federal Reserve (news - web sites) Bank of Cleveland and Kent Smetters, a former Treasury deputy assistant secretary for policy coordination.

Treasury spokesman Rob Nichols denied that, though. "This paper was not prepared at Treasury, by Treasury, or at the request of anyone at Treasury," he said.

However, in testimony before a House of Representatives subcommittee in March, Smetters, with the Wharton School at the University of Pennsylvania, said: "These estimates were made with a detailed model developed by Jagadeesh Gokhale and myself during our time in the Bush administration."

While the paper has been circulating among academic and budget circles for some time, it gained wider notice earlier this month when well-known economists Laurence Kotlikoff and Jeffrey Sachs wrote in a column in the Boston Globe that it had been "yanked from the budget."

Gokhale said on Thursday that he was not sure whether there had been firm plans to include the study's findings in the administration's hefty budget blueprint. Aside from being spending plans, budgets also are meant to give a rhetorical framework to administration proposals.

"It was not a conspiracy, I don't believe," Gokhale told Reuters after an appearance at a Washington budget conference.

"Things changed along the way. Secretaries changed. Perhaps the new secretary and his staff didn't have enough time to vet the numbers and get comfortable (with them)," he said. O'Neill resigned in December and was succeeded by current Treasury Secretary John Snow.

The intent of the paper was to highlight the need for better budget measures, Gokhale said.

A draft of the paper, called "Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities," is available at the web site of the American Enterprise (news - web sites) Institute, where Gokhale is a visiting scholar.

The study outlines how the United States is in danger of being overwhelmed by the future health care and retirement costs of the "baby boomer" generation.

The authors use a measure they call fiscal imbalance, which adds federal debt held by the public and the current value of all future federal spending minus the current value of all future revenues. Sustainable policies, they say, would have an imbalance of zero.

But largely because of Social Security and Medicare obligations, the imbalance was calculated at $44.2 trillion -- astronomical even by the standards of U.S. federal government accounting. For this fiscal year, the government's cash shortfall is widely expected to be more than $300 billion while accumulated debt from previous budget deficits stands at around $6.4 trillion.

[jbooma]

Don't forget that report was reported by some of the guys Bush fired I believe, so who knows.

All I do know during the Election Bush brought up the big tax cuts and then the Democrats jumped on board so it seems both parties agree one way or another.

I have felt all along we were paying way to much in taxes, we do need to do a better job of spending before it really gets bad.

Since I work with a puplic safety organization I know we needed the extra spending from the government to keep up with everything going on.