Thursday, July 17, 2008

In case you missed it: more on the collapsing economy

Federal deficit soars

By Manu Raju

Congress and the White House are driving up the deficit, alarming budget hawks as the government responds to the sputtering economy.

The nonpartisan Congressional Budget Office (CBO) has estimated that, for the first nine months of fiscal 2008, the government incurred a $268 billion deficit. That’s $148 billion more than a similar period last year — although about half that increase went toward economic stimulus checks. And much more spending is on the way.

“We’re spending like a drunken sailor,” said Sen. Jeff Sessions (R-Ala.), who predicted the deficit would double this year.

But in an election year dominated by domestic concerns, and with the government moving aggressively to address the economy, attacking the swelling budget deficit is not high on the agenda of either party.

“When there is an economic downturn, as we’re experiencing, you expect deficits to jump,” said Sen. Kent Conrad (D-N.D.), chairman of the Budget Committee. “I think it would be very helpful if we were demonstrating something about the long term.”

Political rivals have engaged in election-year finger-pointing. The Bush administration blames Democrats for not dealing with the nation’s entitlement programs; Democrats on the Hill fault President Bush for the cost of the Iraq war.

The White House Office of Management and Budget (OMB) projected in February the country would have a $410 billion deficit at the end of fiscal 2008, but that will likely be a larger figure when it releases revised numbers later this month.

The national debt, which refers to the cumulative amount the government has borrowed and not repaid, is almost $9.5 trillion, the highest level in U.S. history, according to the Treasury Department.

The deficit is the amount of spending that exceeds tax revenue in a fiscal year.

Congress first responded to the turmoil in the financial markets by approving legislation in February that sent rebate checks to millions of Americans, driving up the deficit by $152 billion this year.

At least $14 billion worth of rebate checks had not yet been issued at the time of CBO’s latest projections, ensuring that the deficit will continue to increase. Also, Congress will likely approve an unpaid-for, one-year patch of the Alternative Minimum Tax that costs a little more than $60 billion, and might pass a package worth more than $50 billion in extensions of expiring tax incentives without raising taxes or cutting government spending.

Piling onto that deficit is the $186 billion emergency supplemental that President Bush signed into law on June 30, which includes spending for the Iraq and Afghanistan wars through next fiscal year and $25 billion for domestic programs, such as Gulf Coast reconstruction, a GI Bill of Rights and a 13-week extension of unemployment benefits. Congress, with the White House’s consent, is authorizing more spending, like the $50 billion package to step up the country’s relief efforts on HIV and AIDS, which the Senate approved Wednesday.

But perhaps the biggest wildcard is the massive housing-rescue package, with provisions to prop up mortgage giants Fannie Mae and Freddie Mac.

The Bush administration is pressuring Congress to approve sweeping legislation with provisions that would offer an unlimited line of credit for the government to fund Fannie and Freddie for up to 18 months. The bill has not yet been scored for its price tag.

“The budget deficit is way past where it should be, and the resources that were used to explode the deficit were misallocated,” said Sen. Judd Gregg (R-N.H.), the Budget Committee’s ranking member and a critic of the previous economic stimulus package.

But he is willing to see the budget deficit shoot up to rescue Fannie and Freddie, saying the cost of doing nothing would be far worse.

“What will explode the deficit is if the economy goes through a crisis of a significant adverse effect of Freddie and Fannie and it forces the economy [into] a tailspin,” Gregg said. “The cheapest way for the government to get out of this and the best way for the American economy to get out of this is to make it very clear that Freddie and Fannie will have the capital necessary to remain viable.”

Not everyone agrees with that.

Sen. Jim DeMint (R-S.C.) is worried that taxpayers will be on the hook for an unprecedented tab run up by the mortgage giants.

“The overwhelming majority of Americans don’t want us to bail out mortgage companies,” DeMint said.

OMB cites slower economic growth for a rising deficit, and places the blame on Democratic leaders for not acting on the rising costs of Social Security and Medicare needed to cover an aging population.

“We can drive down the deficit if we keep spending in check and taxes low,” said Christin Baker, a spokeswoman at OMB. “But Democrat leaders have plans to blow the doors off spending … and raise taxes approximately $1,800 for 116 million taxpayers.”

Democrats reject the accusation and deflect the blame back to the White House, pointing to the ballooning costs of the Iraq war for the high deficit. They also blame the White House for standing in the way of their efforts to implement pay-as-you-go budget rules, which say new spending must be offset by tax increases or budget decreases.

When they took the majority last year, Democrats reinstated the pay-go rules. But they have repeatedly dropped them in order to overcome Republicans concerned about new taxes. Also, they have circumvented budget rules by labeling new spending as “emergency,” a common tactic employed in Congress for years.

Rep. Mike Ross (D-Ark.), the co-chairman of communications for the fiscally conservative Blue Dog Coalition, said, “We cannot sustain our current level of debt, and we certainly cannot continue to allow our deficits to spiral out of control.

“If it’s not a true, unforeseeable national emergency, then it needs to be paid for,” Ross said.

Original article posted here.


The Freewheeling Socrates said...

The blame game won't solve anything.

And raising taxes will be a drop in the bucket.

If the government turned everyone working in the North American Union into slaves and confiscated all their earnings the government would still be operating in a negative sum gain.

Da Weaz said...

That's what happens when you turn on the printing press to make money, and the people printing the funny money get paid on its production in the form of interest.

It was rigged for doom from the start.

But it's never been worse than now.

Louis Kelvin said...

This is what happens when you turn on the printing press to make money.The blame game won't solve anything.And raising taxes will be a drop in the bucket.But it's never been worse than now.