Bush Must Balance Economic Values (7/18/02)
by Dean Hartwell
Recently, the Bush
Administration announced that this fiscal year the federal budget will have a
deficit of $165 billion dollars. It will mark the first time in five years that
the federal government will have spent more money than it brought in.
The deficit represents a severe drop from the $127 billion dollar surplus
posted last fiscal year. Given this decline of $292 billion dollars, the Bush
Administration will find it difficult to balance the budget next year. In fact,
advisors to the president acknowledge that a balanced budget is not likely
until 2005 at the earliest.
What does this deficit mean?
In the short term, it simply means that the government spent more money on its
people than they paid in taxes. In other words, the people collectively
received more in terms of programs, tax cuts and other benefits than they paid
for.
In the long term, the deficit adds to the total of money the federal government
must borrow to account for the spending. This sum of money, also known as the
national debt, now totals more than six trillion dollars!
In order to make payments on the debt, the federal government borrows money
from its own citizens (frequently in the form of bonds) and from foreign
investors. The taxpayers pay the interest on these loans. In this fiscal year,
interest alone will amount to approximately $370 billion, or 14% of the total
federal budget. Balanced budgets would reduce the deficit, the debt and the
money we pay in interest.
How does the Bush Administration explain the budget deficit?
Mitchell Daniels, Jr., the director of the White House Office of Management and
Budget, said the shortfall can be traced “almost entirely to what I will call
stock market related income capital gains.” Daniels cites a reduction in
revenues from taxes on capital gains and wants to increase those revenues (i.e.
raise taxes).
This new strategy may work. The Administration’s ten-year 1.35 trillion dollar
tax cut, which began this fiscal year, caused much of the deficit. The federal
budget deficit rose to record levels when Presidents Reagan and the current
president’s father helped enact similar tax-cutting policies in the 1980s and
early 1990s.
As a candidate for president, George W. Bush said he believed in balancing the
budget. He also said that there would be “tax cuts, so help me God.” Now he
will have to choose which belief will guide his economic policy.