The President's Economy on Parade

I don’t want to rain on the President’s parade. He’s right when he says more money is flowing into the Treasury this year than last, which means the federal budget deficit will be lower. Frankly I don’t blame the President for making the most of every bit of good news he can find. He doesn't have much to crow about these days, after all.

But it’s important to put this good news in context. This year’s federal budget deficit will still total between $280 and $300 billion. That’s better than the $318 billion hole that was expected. But it’s hardly cause for celebration.

Federal spending is still way out of control. It’s at a higher rate and a higher percent of the overall economy than a decade ago. Even if you take military spending out of the calculation, you see almost nothing but more spending. And lots of the spending is for pork (bridges to nowhere) and corporate welfare (farm subsidies, a drug benefit that mainly benefits Big Pharma).

Look at the other side of the ledger and things are almost as bleak. Yes, revenues are up slightly. But they’re still running $100 billion less than what the White House projected five years ago when it sold its tax cuts. In fact, overall revenues have barely reached the level they were in 2000.

The basic question is whether those tax cuts have helped or hurt the economy. The White House supply-side gang says they’ve helped, and points to the slight upturn in tax revenues to argue its case.

But every economic recovery offers good news. That’s why we call them recoveries. The business cycle is, after all, a cycle. When the cycle is turning down, the news is bad. When it’s turning up, news is good.

The best way to find out whether the Bush tax cuts have really helped is to compare the current recovery with every previous recovery since World War II. What do we find? Real revenue growth in this one is trailing the average of all previous recoveries. So is the rate of new investment. So is the rate of job creation.

You don’t have to have total recall to remember that after Bill Clinton raised taxes and cut spending, we had faster revenue growth than now, a higher rate of new investment, more jobs, and a more rapidly-vanishing deficit.

But the biggest difference between then and now is the baby boomers are now much closer to retirement. This means it’s even more important now to cut spending and raise taxes in preparation for the upcoming drain on Social Security and Medicare. But what is this administration doing? It continues to borrow against Social Security, spend like mad, and try for more tax cuts.

The President’s supply-side tax cuts have had only one conspicuously positive effect, for one conspicuous group. They’ve helped people earning over $200K a year become fabulously richer. These people do have cause to celebrate, and it’s understandable if they want to parade around in their designer clothes. The rest of us, though, are still caught in a downpour.