As Yogi Berra would say, “It’s like deja vu all over again!” How can we be digging another federal deficit hole after all the struggle and turmoil and political infighting that we suffered before we finally achieved a balanced budget resolution in 1997 after 30 years of deficits. Last month, we learned the federal deficit for 2003 is likely to be $455 billion and that it will grow to $475 billion in 2004.
Looking back just two years, the Bush administration was managing an actual budget surplus of $127 billion and was projecting a surplus of $334 billion in 2003. Six months ago, the deficit was projected to be a “mere” $304 billion. Sure, 9/11, homeland security, Al Qaeda, Usama bin Laden, Saddam Hussein, tax cuts to stimulate a faltering economy, the War in Iraq and rebuilding our defense department have all contributed
to the negative numbers that create our federal deficit. At the same time, federal revenues have fallen from a Clinton-era peak of 20.8% of GDP to 16.3% this year. Federal revenues average about 18% of GDP, so that an improving economy will help to diminish the growth of the deficit in time. The big question is just how long an economic recovery will take to reveal itself.
Some say that the recent upward trend of the stock market presages an improving economy. Unfortunately, unemployment remains high. Worse yet, federal spending continues to expand even outside of the costs of war and rebuilding our defense systems. Domestic spending alone has increased approximately 1% per year over the last three years on top of declining federal revenues.
The federal budget watchdog group, Concord Coalition, warns of “a schizophrenic pursuit of small-government tax policies and big-government spending initiatives.” Whatever happened to promises that we would not tap Social Security funds?
The administration argues that this year’s deficit will only be 4.2% of GDP. While that is not as high as the 6% deficit achieved in the Reagan years, without the Social Security surplus, the deficit would be $614 billion or 5.6% of GDP. And furthermore, none of these numbers include the costs of operations in Iraq and Afghanistan that total about $5 billion a month.
We live in a scary world that is terribly expensive. Without a doubt, we need to do all we can to boost the economy, to protect ourselves and diminish the presence of terrorism. At the same time, we have to be extremely careful to apply fiscal discipline. Over the past year, we have watched stockholders and the government apply discipline to corporate entities that got carried away with their spending habits. In the next year, we will watch and see if President Bush will apply maximum fiscal discipline to the federal budget or whether the public will administer its own discipline on Election Day.
After watching the first President Bush implode after one term and a successful campaign to remove Iraq from Kuwait, it is hard to believe that the second President Bush might fall from the graces of support that he has achieved from his leadership since 9/11. Maybe Yogi Berra was right!?!