Some Bad Fiscal News

Mark Thoma and Menzie Chinn post excerpts from a Wall Street Journal article on Bush’s budget. What caught my eye was the last part about the fiscal problm facing the next administration,

OK. Take a breath. The U.S. economy is not Iraq, and today’s headlines are upbeat… But look ahead, and there is an unwelcome parallel between Iraq and the budget. Current policy is unsustainable, but there is no easy way out. Extend the president’s tax cuts beyond their scheduled expiration in 2009 and 2010, and the fiscal hole is enormous. Let them expire, and the tax increases could derail the economy.

Yep, that pretty much sums it up. Are any of the die-hard Republicans who comment here going to come out and say that Bush’s idea of a prescription drug program for the elderly was a bad idea? Bueller? Bueller?

FILED UNDER: Campaign 2008, Campaign 2010, Economics and Business, US Politics, , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. ken says:

    Restoring fiscal sanity to our government will NOT derail the economy. If it has any effect at all fiscal sanity on the part of the government enhances economic vitality. This was proven during by the Clinton economic policies.

    Liberals knows that conservatives are dead wrong when they say that deficits do not matter.

    Funding the government with taxes, instead of borrowing, not only lowers interest rates but it is the most effective mechanism to control government spending ever devised.

  2. Steve,

    You do seem to have a tendancy to see the dark clouds on the horizon.

    I remember a while back you had a string of posts on the GDP and the economy. The economy is slowing, the economy is slowing. Then when the fourth quarter GDP numbers come out showing the 2006 GDP was slightly ahead of the 2005 GDP, no post from you. An increasing GDP year on year is a sign of an growing, not slowing economy to me, but then I’m not the expert.

    So now what to make of the idea that we face a horrible choice between raising taxes which would derail the economy and not raising taxes which would lead to an enormous fiscal hole.

    Some other people have a different view on all of this.

    On a 12-month versus 12-month basis, federal revenues increased 11.5%, while federal spending increased just 5.3%. This is great news. As long as spending growth remains in check, the budget deficit will continue to decline.

    In fact, our models expect average tax revenue growth of 9% over the next three years and spending growth of between 4% and 5%. This will generate a well below consensus deficit in FY07 of just $115 billion. Next year in FY08, we forecast a deficit of only $35 billion. On a 12-month basis, we suspect that the budget will move into balance early in FY2009, well before the Office of Management and Budget or the Congressional Budget Office expect.

    This would seem to indicate that we don’t face the choice. The economy which seems to be doing better than what you predicted can continue to grow. This growth leads to more tax revenue (not higher tax rates, higher tax revenues on the larger economy). And if we control spending, the deficit does not then become an enormous hole. It is essentially the way we grew ourselves out of the last deficit.

    Something unexpected could happen, but to me the way to bet is with a continuing strong economy being the key to avoiding the terible choices you forsee. Of course, what do I know, I’m just a ‘troo believer’.

    p.s. I agree that the perscription drug program adds yet another entitlement program to our government, but I also note that it is coming in at a lower than projected cost both to the government and to the users.

    Here are some links to your previous economic predictions.
    third quarter GDP up from 1.6% to 2.2%. This is good news, but it still points to a slowing economy.

    in looking at the graphs it seems fairly obvious that the economy is indeed slowing.

    And yet more evidence that the economy is slowing (not that I expect this to make much difference to the Troo Believers out there). For the third quarter of 2006, the Bureau of Economic Analysis’ advance estimate of GDP growth is 1.6%.

    GDP growth has slowed according to the advanced estimate just released by the BEA.

  3. Edgardo says:

    Steve, I’m very surprised about the title FISCAL NEWS. Then you refer to some projections; they are not news, they are projections.

  4. just me says:

    I am trying to figure out just what die hard republicans-at least the ones not in congress like the prescription drug plan.

    I am repbulican, not sure about the die hard part, but I have never defended the plan. I think it ended up being some kind of compromise mish mash that pleased very few people, and in the end cost a ton of money.

  5. anjin-san says:

    Bush has screwed us in yet another arena, but that’s not really news…

  6. RJN says:

    From TCS Daily, Asian Patent Wars.

    “The largest drug company in the world, Pfizer, has been in a bit of trouble lately. It recently announced it would fire 10,000 staff, close two factories and 5 research facilities. And the stock market has beaten up its share price. At issue is the paucity of new drugs coming on line. Poor management and bad luck may be in part to blame, with high-potential drugs failing at the last clinical hurdle. But some of the problem is the inability of Pfizer, and other innovator firms, to charge efficient prices for their drugs around the world.”

    http://techcentralstation.com/

    Steve: You are aware of what this link speaks of. Middle income and lower middle income Americans pay the highest drug prices in the world. The prescription drug plan provides an important element of support for drug development, while giving relief to the folks who pay the very highest rate of drug development taxes.

  7. I don’t consider myself to be any kind of Republican, even though I am conservative and libertarian-minded. Anyway, I have nothing good to say abotu the prescription benefit program. If any large business incorporated in, say, New York, rans its affairs the way our Federal government does, how long do you think it would have taken Eliot Spitzer to try and put them in jail?

  8. RJN says:

    Please understand that government paid for, or sanctioned, employee drug payment plans, “insurance”, have dramatically distorted the prices various Americans pay for prescription drugs.

    When the huge “plans” negotiate lower prices for drugs, the drug companies up the price to uninsured drug purchasers. All of the protected classes, i.e. employees of government, and education, or with unions, who are usually overpaid to begin with, get costly drugs for very little money.

    I repeat; regular people pay much more than they should because their prices have been increased in an effort to make up what the “plans” have negotiated out of their prices.

  9. Christopher says:

    I am a die hard republican, and I will be one to say, the “prescription drug program” was a mistake.

    What the heck is your problem, Steve? News Flash: Bush is a politician. They do things like that with the expectation it will help them win re-election. Are you new to this game???

    I read it. The WSJ was talking about ALL the entitlement programs. And this was an article, not an editorial. I guess you are one of those liberals who take things out of context.

    Besides, the economy, as the article stated, is doing GREAT! Great job President Bush. He gets way to few accolades.

  10. Bithead says:

    Steve;
    I’ve always considered a bad idea, and have said so. That said, it’s better than what the democrats offered by the same fiscal lights.

  11. Bithead says:

    Then again, I should add that nobody’s considered Bush a conservative, except for the far left. Bush is in fact, a satirist, and is trying to find a middle path between the far left and the conservatives. IN the end, that compromise isn’t going to be as good as it should be.

  12. anjin-san says:

    Earth to Bithead,

    Nobody on the left considers Bush to be a conservative. There have been a lot of principled conservatives who were worthy of respect. Pres. Reagan comes to mind.

    Bush is a slow witted man who has had things handed to him his entire life. He does not understand the value of a dollar, for one thing. About all he is good for is spending money that is not in hand. He has no respect for the liberties handed down by the founding fathers. He is certainly no conservative.

  13. Steven Plunk says:

    I guess I could be called a die hard Republican since the alternate choices are dismal. Like many other conservatives who have posted on this subject I too never saw any real good in the prescription drug plan.

    I will point out that congress approved the plan so I am more likely to call it a gubmint program than a Bush program. It is yet another example of the folly of looking to government to solve every problem whether real or perceived.

    I am especially frustrated with those who call for something to be done and then complain when it is. Many times it’s best to do nothing.

  14. Christopher says:

    Hey Jap man:

    It is funny you bring up Regan and also call Bush “slow witted”. That is what they used to call Reagan, now many believe him to be one of the greatest presidents.

    You call Bush slow witted, yet he kicked the democrats butt all over the place, and even with recent elections still has veto power over the whole bunch. LOL! It is democrats that are slow witted! Look in the mirror liberal!!!

  15. anjin-san says:

    Christoper,

    I generally don’t reply to bigoted jerks, but am making an exception. Apparently you are not well informed enough to know that in the current White House, Rove is the brain, and Bush is simply the mouth…

  16. Steve Verdon says:

    RJN,

    You can’t make yourself more properous by going deeper and deeper into debt nor can you make yourself better off by offering larger and larger transfer payments. Eventually the party will end and there will be one mother of a hang over.

    YAJ,

    Sorry, I think those forecasts are wildly optimistic.

    Edgardo,

    Projections make it into the the news all the time. Any discussion about Medicare/Social Security shortfalls for example.

  17. Bithead says:

    Nobody on the left considers Bush to be a conservative.

    I guess that means the Bush=Hitler meme is off again, huh, Anji?

    Or, is it that Rove is Hitler?
    Or is it Chaney, today? You guys keep changing your story…

  18. RJN says:

    Steve: I do understand what you say in 17:31 above.

    My point is that as transfer payments go, this one helps two ways. It benefits the intended recipient and it directly helps fund drug research. Without the drug benefit I would be buying drugs from Canada, (and not funneling money to the innovator) or be going to generics even though – through my own experience – they don’t work as well.

    Thanks for the always pertinent and useful posts from you, and for OTB in general.

  19. Kent G. Budge says:

    I probably don’t qualify as a die-hard Republican, since I once voted for the Libertarian candidate for President. But I thought the prescription drug plan was a rotten idea from the start.

    I’m puzzled by the statement that:

    “Middle income and lower middle income Americans pay the highest drug prices in the world. The prescription drug plan provides an important element of support for drug development, while giving relief to the folks who pay the very highest rate of drug development taxes.”

    I’m not sure what “drug development taxes” means. I’m also under the impression that the majority of those benefiting from the prescription drug plan are elderly citizens, who are the wealthiest age demographic. If the intent of the drug plan was to help lower- and middle-class folks, this intent was awfully well hidden.

  20. RJN says:

    Those of us older Americans who are not covered by a drug insurance plan, are obligated to buy drugs at the highest retail price. I call this extra cost a tax because I have to pay it, and because it benefits the people of America (more money to the drug innovators) in general. Insurance plans negotiate lower prices for their drug purchases. Also, often as not, taxpayers are picking up the tab for the drug insurance premium.

    The extra cost can vary up to 50%, which is the approximate discount I pay if I buy a certain drug from Canada. That is to say, I pay slightly less that half the U.S. cost if I buy a certain drug from Canada. $103/ month vs. $218/ month. I claim that a good part of the extra money goes to the drug innovator.