First, assume away expenses…
From the Washington Post:
“Administration officials also exclude some potentially expensive items. Their request, for the first time, attempts to show the true cost of the wars in Iraq and Afghanistan in the coming fiscal year, $145 billion, but includes just $50 billion for fiscal 2009 and nothing thereafter.” [Emphasis added]
After seeing this, one could be excused for putting more faith in the CBO’s assessment of Iraq costs than the Administration’s.
I’ve got more commentary on Bush Administration budget policies in Monday’s Wall Street Journal.
Technorati Tags: Iraq, budget deficits,
mendacity,
defense expenditures.
Everyone knows this administration’s idea of budgeting is pure fiction. Let’s talk about something more useful: attaching a surtax to the Iraq Supplemental.
We need to start sending the bills for this war to Bush’s remaining supporters among the very affluent. This will precipitate a revolution within the Republican fundraising class which will terminate our involvement in Iraq in very short order.
Start telling your Congressmen today to support a surtax on upper incomes to pay for the Iraq Supplemental. A one time tax, raising exactly the amount the Supplemental seeks to appropriate, and with an explicit exemption for taxpayers with family serving in Iraq or Afghanistan. This will both reduce our massive military overreach and somewhat diminish our fiscal disaster at the same time.
Menzie,
Have you done any analysis to determine why the deficit is declining, unemployment is remaining low and inflation is down after the economic hits of 9-11, three hurricanes hitting Florida within a two month period, Katrina and the massive Federal spending on its recovery, and the military spending on Afghanistan and Iraq (and other spots in the war on terror such as Somalia)?
One thing to consider is under our extremely progressive income tax workers making less than the average wage pay pay only 3.5% of income tax while the top 10% pay 65.8% of income tax. http://www.house.gov/jec/publications/109/Research%20Report_109-20.pdf What will happen to federal tax receipts if income is shifted from corporate executives to lower paid workers?
While we’re assigning Menzie homework (to earn his grant money from the management here at USA, Inc.) maybe we should take into account a little more than the share of income taxes paid according to the link DickF provides above. My take is that those figures are just a proxy for the lopsidedness of INCOME, rather than much of a comment on the overall progressivity of our tax system. But your ideological mileage will vary 😉
Here’s a more constructive contribution to the debate about the fairness (or otherwise) of our current tax burdens:
http://economistsview.typepad.com/economistsview/2006/09/the_progressivi.html
My deeper point of course, is that Iraq is too abstract in the minds of most of our “responsible citizens” (read affluent people in demanding jobs with no spare time to really think about geopolitical strategy). Being rude and asking the question of “who pays” is not intended to make taxes go up. I’d be as delighted as the next guy to not pay any more taxes, whether income, property, SS payroll, whatever.
But I’m not getting shot at in Iraq, and my bet is neither are you. If other people being shot at doesn’t make you think, maybe the prospect of a surtax will focus your mind a bit.
Homework question for all of us: Just how much are YOU willing to SACRIFICE for Mr. Bush’s War?
Menzie-
I second Dick’s question and add another: how can continuing the current tax rates lead to lower revenue? We have shifted down to lower rates, took a revenue hit and have now climbed back up close to the levels projected prior to the Bush 2001-2003 tax cuts.
Looking at the WaPo article again, how can the CBO project that the budget surplus will be $170 billion by 2012, but will be a deficit of $146 billion if the tax cuts are extended? A $316 billion swing? Sounds like a pretty big tax increase to me. Given that every projection of the deficit since 2003 (CBO and OMB) has proven too pessimistic, I am not inclined to believe the CBO 5 years out.
DickF and Rich Berger: We are currently at a deficit of around 1.9 ppts of GDP for FY2006, according to CBO. But we are at that value when output is near potential GDP (CBO places FY2006 nominal GDP at 13065 billion, and potential nominal at 13106). Hardly spectacular performance, in my book. See also my discussion of how “spectacular” recent tax revenues are in light of an ARCH model for the volatility of Federal tax receipts, here. With respect to Rich Berger’s question about tax receipts being back to the level projected pre-tax cuts — well, I’d like to know if that’s the level expressed as a share of GDP, or level in nominal dollars. If the latter, well, projecting I(1) processes is an iffy task. Just a little inflation above forecast, and…
CBO was too optimistic in the late nineties, too pessimistic since 2003. Cherry pick all you like. Bottom line is predictions are hard, especially about the future (thanks Yogi). If CBO can’t be trusted 5 years out, but we can talk confidently about Social Security shortfalls at much longer horizons, what are we really talking about here?
I wish economists would stop staring cross-eyed at time series long enough to think about policy once in a while.
I have a serious question. For the past year or so, the debt-GDP ratio has stabilized and even decreased a little bit, so in that sense, the budget is already balanced. Why would we want to run a totally balanced budget in a growing economy and thus drive the debt-GDP ratio down to zero?
Doesn’t this sound like the Washington Post is recommending that we keep troops in Iraq beyond 2009?
Chris,
Great question. Often the federal budget is compared to a home budget but what is always left out is that a balanced home budget means that we can pay our bills. The government is doing that and actually has less debt compared to income than most households. A little fiscal restraint and we are fine, but fiscal restraint doesn’t compute in congress.
Menzie-
According to supply-side theorists, as you of course know, reductions in tax rates do not lose as much revenue as predicted on a static basis, for two primary reasons. First, decreases in rates increase the after-tax return to productive activity, leading to an increase in that activity. Second, tax shelters become less valuable, meaning that more income is declared. One side effect would be that taxes are now a lower share of GDP.
I don’t know how the potential GDP is calculated, but I am suspicious of its validity. If you can explain why I should take it seriously, I would appreciate it.
Whether supply-side effects occur and whether they are significant is an empirical question. I have tried to examine OMB projections from the Clinton administration and the Bush administration to estimate (constant dollars) whether revenues really have increased above what would have been expected post-tax cuts. I really have not been able to get a good handle on it because too much is moving. Also, there are lags in final figures – for example, the last Clinton projection in Jan 2001 had final numbers only through FY1999. I do know from looking at the projections is that (a) the Clinton forecasts were conservative and (b) the drop in revenues after 2001 was sharp, way above the estimated cost of the tax cuts. That is as far as I have gotten, but I hope to do more analysis and present my findings (for others to criticize).
but includes just $50 billion for fiscal 2009 and nothing thereafter.” [Emphasis added]
After seeing this, one could be excused for putting more faith in the CBO’s assessment of Iraq costs than the Administration’s.
Did you read the CBO’s assessment of Iraq costs that you linked to? Did you notice that it, too, only goes up to FY 2009, and includes “nothing thereafter?”
Did you notice that under the “Four Month Peak Deployment” scheme it includes just “less than $500 million” for FY 2009, and under the “Twelve Month Peak Deployment” scheme it includes an estimate of $2 – $3 billion increased cost in those years?
Indeed, according to the main CBO report released recently, we see on page 71 (page 89 of the PDF) that regarding the CBO’s default scenario– including the recently announced troop increase– “As described more fully in Chapter 1, that scenario would add about $25 billion to baseline outlays for 2007, but annual outlays would decline relative to the current baseline beginning in 2010.”
So it seems to me that the CBO is saying essentially the same thing as the Administration in both the document you linked to, and “The Budget and Economic Outlook” released recently. Under that scenario there would indeed be no costs for the Iraq war over the baseline CBO projections after FY 2009.
Of course, the CBO does offer an alternative scenario with a slower drawdown and more spending. But, then again, once we get into FY 2009 things already start to become the responsibility of the next President. Hilary Clinton said recently, “If we in Congress don’t end this war before January 2009, as president, I will;” if that holds true, then the rapid drawdown scenario easily good.
Now, Professor, you may believe that the war costs will indeed cost substantially more than the CBO predicts, or that the more pessimistic outcome will occur (continued bad fighting plus a new Administration devoted to keeping the troops there longer). But at the very least the Administration seems to be guilty of no more than choosing the more optimistic of the CBO’s two scenarios presented in their budget outlook.
The Federal deficit is not at all similar to a home budget. A moderate fiscal deficit as a % of GDP is obviously sustainable.
Good that the Administration is starting to incorporate meaningful estimates of Iraq occupation costs, etc. No problem with them choosing the “optimistic” CBO scenario that puts HRC in the White House Jan 2009 (depending on your definition of optimism).
Sure Congress is challenged by the “little fiscal restraint” needed — so is Mr. “I don’t know how to veto a spending bill” Bush. I don’t know that the supply side miracle doesn’t exist, but I do suspect that the 2005 revenue effects of the tax holiday known as the Homeland Reinvestment Act deserve more credit than is recognized here.
The policy questions here are: how do we stop continued escalation? How do we prevent a poorly thought-out attack on Iran? How do we manage our debt vis-a-vis the People’s Bank of China? Congress needs to assert itself somehow, without attempting to micromanage the Iraq occupation. Rather than attempting to revise the AUMF or legislate specific troop levels, I think it would be constructive to challenge Bush’s core supporters to put a dollar value on his approach to our geostrategic concerns in the middle east.
If you can point me to a GARCH specification that addresses these questions, please let me know.
John Thacker: Yes, indeed I am familiar with both documents; as you may have observed, they have been linked to in these posts.
What I meant by trusting CBO more than OMB in this case is that the CBO’s estimate of the near term cost of the “surge” (a.k.a., escalation) is more plausible than the President’s $5.6 billion figure. Or do you find the $5.6 billion estimate more plausible.
Regarding the out-year estimates, CBO uses as baseline the current-law formulation. That is, it doesn’t zero out Iraq/Afghanistan expenditures in FY2010 onward, as the President’s budget does.
Finally, I would say that since the President has on several occasions indicated the United States will require years to train Iraqi security forces, it is incumbent upon him to budget accordingly. And the defense that somebody else will be in power in FY2010 doesn’t make sense to me. After all, the Administration is happy to budget reductions in food stamp expenditures all the way out to FY2012.
Rich Berger: For discussion of CBO’s method of estimating potential GDP, see this document. If you remain skeptical, then I’d welcome your views on an alternative.
STS: Not certain what you meant about the GARCH specifications; I only mentioned GARCH in the context of modeling volatility in tax receipts, which seems to me an entirely appropriate way to approach the question. But I do agree that all your questions are valid.
I was being ironic about the GARCH specification. No criticism of your model of the volatility of tax receipts. Just expressing the idle wish that the economics profession (not you particularly) could take in the bigger picture more often. Thanks for a stimulating blog.
I do suspect that the 2005 revenue effects of the tax holiday known as the Homeland Reinvestment Act deserve more credit than is recognized here.
STS,
Simply passing out cash is always foolish and does virtually nothing for the economy. Many people equate such cash distributions with Supply Side Economics but nothing could be farther from the truth. This is pure Keynesian demand side economics. Keynesianism stimulates consumption which only consumes existing goods and services creating supply shortages, reducing savings, dislocating supply distribution, and creating price push inflation. Supply side allows the production of goods to satisfy demand satisfying shortages, increasing savings, using the market to optimally distribute goods in the economy, and allowing prices to seek the level required by demand.
The first Bush tax cut was Keynesian and did virtually nothing to the economy. The second was Supply Side and we are still reaping the benefits. If the Democrats are successful in ending the tax cuts and rolling back capital gains reductions we will see real economic troubles.
When you begin to hear the whining about “Bush program spending cuts” consider that the Bush $2.9 trillion budget is around $10,000 for every man, woman, and child in the United States; that is $40,000 for a normal family of four. And the government can’t live on that?!!!
DicjF — not to be difficult, but if the supply side tax cut were meant to encourage investments why are you claiming they did their job when we are seeing the weakest capital spending now of any cycle since the depression. The theory is that supply side tax cuts increase after tax returns and because of these higher returns investors will pay more for stocks and lower the cost of capital– thus encouraging investments. But we have yet to see the increase in the stock market PE required for this to work.
So please explain that since the cost of capital has not fallen how the supply side response could have worked as you postulate.
STS– love your idea of a Iraq tax surcharge
DickF,
I’m reasonably clear on the distinction you make between JM ‘Defunct Economist’ Keynes and Arthur Laffer (pick your favorite supply sider) and their respective schools of thought on tax policy.
I’m not as clear on the specific differences in actual effect of the various stages of the Bush agenda on taxation. Those are empirical questions, and others here have certainly had more opportunity to parse the data than I have.
As I mentioned before, I have no personal enthusiasm for taxes of any description and am even reasonably receptive to ‘radical’ reform notions like consumption taxes, etc. But I have the strong impression that the net effect of tax policy under the present Administration has been to shift the burden toward lower income people.
I don’t dispute the generally progressive character of the income tax at present, but there are a lot of other taxes in the system. A lot of local property tax measures popped up shortly after the Federal tax cuts, for example.
But my purpose in ‘interrupting’ the regularly scheduled time series analysis on this blog is to point out that our foreign policy is being run on an excessively military basis and the oft-mentioned ‘winners of globalization’ are too busy globalizing to pay serious attention to the self-defeating futility of the ‘neocon’ vision.
I don’t want to pay any surtaxes (and I’m likely to be affected personally by what I propose) and I bet most happy productive globalizers on both sides of the ‘aisle’ would feel the same way. Better to tell Bush privately to stop his madness than to pay for it.
I hope I’m not delusional in thinking Bush would listen to some of his favorite billionaires if they took him aside. But given the Senate vote yesterday, I can’t think of any better course.
spencer: Thanks. Remember the sincerest form of flattery is EMULATION, share your views 😉
But I have the strong impression that the net effect of tax policy under the present Administration has been to shift the burden toward lower income people.
No, the net effect has, if anything, been to shift the burden towards households making $100,000 to $500,000 in states with high local and state taxes and high property values. This is largely due to the AMT wiping out the tax cuts for many people who fall in that band.
Even the Bush income tax cuts, ignoring the AMT, made the tax code slightly more progressive overall.
Regarding the out-year estimates, CBO uses as baseline the current-law formulation. That is, it doesn’t zero out Iraq/Afghanistan expenditures in FY2010 onward, as the President’s budget does.
Can you kindly point me to the part where it’s clear that the President’s budget is not against a baseline, such as it indicates here? The Washington Post coverage is, I’m afraid, not good enough for me. After all, I fear that a paper would similarly describe the CBO’s comparison to baseline as “budgeting nothing for Iraq after FY09.”
That paper also a discussion of the BEA baseline, and then OMB assumptions that would change the baseline– including proposing extending the tax cuts, and of course assuming that certain emergency spending (such as for Katrina) will expire and not be included in the baseline. I would like a clearer pointer that the OMB assumptions are not simply the difference versus baseline required for the spending. I don’t doubt that you may be correct, but surely the newspaper article is unconvincing.
After all, even under the baseline assumptions the deficit does go away by FY2011, and, as we know, the CBO claimed that the total DoD expenditures (including Iraq) would be below the baseline by then. So it’s not clear at all that an assumption of no deficit by FY2011 is the result of ignoring and pretending away spending in Iraq.
Not that it’s all not trivial compared to the technical Social Security and Medicare promised benefits in the future, and not that it does not depend– as do all such projections– on rosy economic assumptions. A shift to a recession can affect the deficit far more than any spending plans. Certainly every Administration in recent memory has been guilty of projecting out no recessions at all in their OMB forecasting.
After all, the Administration is happy to budget reductions in food stamp expenditures all the way out to FY2012.
Just so we’re clear, you mean “cuts in the rate of growth in food stamp expenditures,” or “cuts in real terms after inflation,” I assume, considering that the actual document projects expenditure increases for the program. As oppose to, say, the real cuts the Congress is proposing for the Millennium Challenge Corporation, sadly.
Both of those, of course, mean “cuts in food stamp expenditures relative to the baseline.” And if that’s the way that “cuts” are generally described, rather than as absolute numbers, well, then it’s another reason to not trust the newspaper article as written.
And, of course, the CBO budget projects a near surplus by FY2011 and a surplus by FY2012, and that’s with the baseline, whereas the CBO’s assumptions of Iraq costs have total DoD expenditures decreasing relative to the baseline by then. Also, like the OMB, the CBO believes that the spending for Katrina in 2006 causes the baseline to be at an artificially high level that does not properly reflect future spending.
Therefore, it seems to me that the CBO agrees with the OMB about when the budget will be balanced, Iraq war or no. No assuming away of expenditures required.
Actually, since 70% of us don’t support the Iraq war, I suggest the tax burden be shifted to the 30% that do. And I think Mr. Bush and Mr. Cheney’s entire salary ought to be used to pay for their war, along with the salaries of all Republican senators.
spencer,
How many new highs have we seen in the stock market recently? If stock prices rise yet PEs remain constant what does that tell you about earnings?
But that said remember that Supply Side is not about the stock market. Supply side is about prosperity, or in other words satisfying the wants and needs of consumers. Now this will lead to higher stock prices but that is a progressive process. Supply side is not a get-rich-quick scheme.
STS,
I will defer to John Thacker’s response. It was better than I could write. (and you are right, Laffer is not my favorite Supply Sider,)
John,
Since you have obviously made a close study of many of the documents, I would value your impressions of the arguments present at the link I posted earlier:
http://economistsview.typepad.com/economistsview/2006/09/the_progressivi.html
I suspect you are correct on a narrow interpretation of the question, but may not be allowing for the proxy effect — as the rich get richer, OF COURSE they pay more in taxes unless you do something really dramatically regressive.
Donna,
I think you are expressing some of the political sentiment — as distinct from rigorous economic argument — which I think needs to find a voice in Washington. Regardless of the detailed merit of various tax programs, what is happening in the world today is a dramatic shift away from a “Born in the USA” sense of unlimited possibility and towards a rough, competitive struggle where Americans enjoy no home-field advantage.
Perhaps my main purpose in suggesting an Iraq surtax is that it would serve to dramatize the inherent linkage between the perceived FAIRNESS of life in America — that there is a legitimate social compact between rich and poor — and the way Mr Bush’s “vulcan” foreign policy relies upon endless recycling of troops into the same streets doing the same counterproductive things. We seem to live in a country where war fighting and sacrifice are in Leona Helmsley’s immortal phrase “for the little people”.
John Thacker: Not to belabor the point, CBO’s current law budget deficit shrinks because of the expiration of the provisions of the 2001 and 2003 tax cuts.
The cuts in food stamp programs are relative to baseline, and I pulled from the tables in the zipped file of PDFs of the budget (the file named “tables.pdf”), and not from journalistic accounts.
I think it’s worthwhile considering the current law baseline that CBO is using (which includes inflation adjustment to expenditures included in emergency supplementals) versus the Budget Enforcement Act (BEA) baseline. The baselines obviously differ; hence the deviations relative to those baselines will have different implications. These differences may be large for defense expenditures, especially given how Iraq expenditures have been funded by emergency supplementals.
STS: Sorry for missing the irony — apologies. Now I see the point.
We seem to live in a country where war fighting and sacrifice are in Leona Helmsley’s immortal phrase “for the little people”.
STS,
I am sorry but this is arrogant and insulting to our military. The US all volunteer military is the best educated in the world and better educated than the average American. Those who volunteer for the military overwhelmingly state that their reason is to help people.
You are locked into a Vietnam mentality where the Democrats snatched the poor off of the streets and made them cannon fodder. Our current military is very sophisticated.
STS-
I followed your link to Mark Thoma’s site with the links to the Piketty and Saez paper and found it wanting for several reasons: First, their graphs have a curious x-scale 0-90% then breakdowns for the 90-95,95-99 and then slices of the top 1%. This presentation is highly misleading, like examining an elephant with a microscope and attempting to draw conclusions about the whole creature. Apparently, they are disturbed because taxes on the top few percent are lower as a percentage of income. Big deal. Second, they attribute this “problem” to drops in the corporate and estate taxes, which are relatively minor components of federal taxes. That result would not be supported if they were not focusing on the very tiny end of the income range. This analysis is very misleading.
There is a group of people, apparently including you, who seem more interested in taking as much as possible from those who earned it and giving it to those who have not earned it, than efficient funding of government operations. You call the tax system “progressive” so that people will consider it virtuous when it’s merely punitive.
I second DickF in condemning your know-nothing attitude toward the military.
I am well aware that the military is much different from what it was in the Vietnam era. It has also been a model of integration and opportunity for many many people.
What I’m attempting to convey by quoting Leona Helmsley is the detached and ultimately indifferent attitude of the top decision makers in our society to the moral quagmire of Iraq. We collectively are quite content to send the SAME troops to Iraq OVER and OVER and OVER again, and then nickel and dime them over benefits when they get home.
Yes the military is quite sophisticated, but it doesn’t send many prep school kids into Iraq. People from the upper social tiers died hitting the beaches in places like Tarawa and Omaha beach.
We hadn’t yet become quite so ‘sophisticated’ about the outsourcing of our moral baggage.
I’m definitely NOT in favor of progressivity as punishment. I think there is a sound economic case to be made for the efficiency of a moderately progressive income tax system, but I can accept that there is probably legitimate debate on that question.
A lot is hiding under the blithe assertion about “from those who earned it” — did Paris Hilton earn any of her money? Why do you equate possession of wealth with moral excellence? I respect and admire self-made people as much as anyone does. But unconditional assertion of the “right of inheritance” is profoundly dangerous to liberty whether it be the inheritance of a hotel chain or of the Oval Office. If it is any consolation to you, I would probably wind up paying some of any surtax levied, and I can assure you I regard my income as ‘earned’.
I’m sorry if the argument I linked to at EconomistsView wasn’t of the highest caliber, but your criticisms center on weaknesses of presentation rather than what I took to be the main message: that looking only at share of personal income taxes paid by income percentile is a blinkered perspective on progressivity. You should argue with Mark Thoma (or Piketty and Saez) about the merits of that case.
I’m gratified that you have made the transition from snide brush offs directed to others to open attacks on my ‘modest proposal’ (cf. Jonathan Swift) that we start ‘eating rich people’. This represents progress of a sort, as the capacity to become angry can transmute into the capacity to act on a moral impulse. No war, no tax. Consider your political options. Getting testy with me doesn’t count for much.
Please try to keep your remarks from devolving to a personal basis, and sticking to critiquing ideas in non-hyperbolic language.
DickF: Didn’t conscription end in 1973? I seem to recall that Nixon was President up until 1974, so wouldn’t that make the draft a bipartisan affair?
The US is a republic, yes? Then why is the majority opinion on the occupation of Iraq not acted on by Congress? Why are politicians debating the sums of the funding, instead of debating the legality of this particular budget item?
Or does a War President have unproscribed powers, and Congress but a rubber stamp?
I’ll need to sign off for a few days … meet you on another thread perhaps?
Menzie: Apologies for the intrusion. I’ll try to keep myself non-hyperbolic — strictly elliptical from here on out 😉
nemo: The left has been knee-capped by the end of the cold war, and the right has lost its balance as a result. (That was figurative rather than hyperbolic I trust.) Adjustments ahead …
Cheers!
Clarification: the “non-hyperbolic” admonition applies to everybody posting on this blog. I will similarly try to restrain myself.
Menzie,
I am no fan of Richard Nixon. I rank him as one of our worst presidents. That said Vietnam was not his war. He inherited the conflict and was in a no win situation. He was the president who pulled us out after all (Kennedy and Johnson pushed us in), but I will never forget those images of people crying in fear as the last helicopter left the embassy with sounds of the Vietcong all around beaking the agreement before the ink was dry.
I do note that the CBO’s paper released today seemed to find the President’s budget estimates for Iraq fairly credible, at least for the first two years:
Looking at the President’s budget, it’s a fairly confusing document, but there seems to be two entirely different parts. The first consists of specific requests for FY07 and FY08, and then there is the appendix that I linked that has baseline estimates out to 2012. The Iraq costs are broken out separately in the first part, but apparently included in the general DoD baseline in the second appendix. I believe that that explains the Washington Post’s comment, but I could be wrong.
CBO’s current law budget deficit shrinks because of the expiration of the provisions of the 2001 and 2003 tax cuts.
True, as does the BEA baseline. The Appendix given from the CBO manages to still allow the deficit to be eliminated while maintaining the 2001 and 2003 tax cuts largely by claiming that using the baseline overstates the amount of emergency aid because of Katrina being a one-off event. The CBO budget projection mentions this likelihood, but the current law projections including the Katrina spending in the baseline and project an increase in emergency funding each year based off that.
Neither baseline addresses the AMT issue, though the CBO budget, when discussing the expiring tax provision, also discusses the costs of reforming it so that it doesn’t hit the $100,000 to $200,000 household bracket. I believe that the President’s budget does not suggest increasing the AMT exemption along with extending the other tax breaks.
Looking at the numbers on the CBO projection, it appears to me that the $170 billion surplus projected for FY2012 is large enough that reductions from the baseline due to less hurricane emergency spending would come close to covering the costs of extending the income tax and estate tax changes without making the AMT changes. I do not believe that it would entirely cover both, though, according to the CBO numbers. (I’m not sure, for one thing, how many of the multiple tax interactions listed are due to the AMT reform as well.)
Of course, 2012 starts to get far enough off that changes in economic assumptions will have a real affect on the budget numbers as well. If there’s a recession, which there always could be by then, then there’s certainly no chance of a surplus.
Ah, found the document that has the details of the proposed cuts and adjustments. The Food Stamp cuts, it appears, are entirely the result of technical changes limiting states to giving food stamp money to families poor enough to receive TANF (Temporary Assistance to Needy Families) or SSI (Supplemental Security Income) funds. (Page 141) It claims that some states are, due to a loophole in the program description, giving food stamp money to families above the income threshold for the program. (Note that at the same time, the budget proposes increasing the money spent on the State Childrens Health Insurance Program (SCHIP) targeted at needy families.)
The entire rest of the way that the budget assumes that it’s going to be balanced is that it assumes that the various program cuts proposed will be adopted. Some of the programs proposed to be cut are pure corporate welfare that I think you’d agree with cutting, but at the same time we certainly must concede that Congress is not necessarily likely to cut.
By far, though, most of the savings comes from Medicare and Medicaid changes. Interestingly for those following some of the Medicare debates, it proposes savings based on allowing states to use managed formularies of approved drugs and reduces the upper limit allowed to be paid for some pharmaceuticals for Medicaid. The budget also proposes increasing the premiums for the elderly who voluntarily sign up for Medicare as beneficiaries but who have outside insurance and income in excess of $80,000 as individuals or $160,000 as couples.
Of course, the Administration can not possibly expect all these proposals to be adopted. However, I think that based on the CBO numbers, it is entirely possible to have a 2012 surplus if there is no recession, hurricane emergency expenditures return to historic norms, and the proposed cuts are established, even if the 2001 and 2003 tax cuts are extended.