Budget Deficits Widen as Expected

The White House announced that the budget deficit is expected to top $1.8 trillion for 2009:

With the economy performing worse than hoped, revised White House figures point to deepening budget deficits, with the government borrowing almost 50 cents for every dollar it spends this year.

The deficit for the current budget year will rise by $89 billion to above $1.8 trillion — about four times the record set just last year. The unprecedented red ink flows from the deep recession, the Wall Street bailout, the cost of President Barack Obama’s economic stimulus bill, as well as a structural imbalance between what the government spends and what it takes in.

As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps.

I was close with my estimate for 2009, but I also pointed out that my numbers are still fairly optimistic. Please consider President Obama’s Budget for FY 2010 – A Continuation of the Bush Era:

The president’s budget estimates tax receipts of $2.2 trillion, $2.4 trillion, $2.7 trillion, and $3 trillion for 2009, 2010, 2011, and 2012, respectively. These estimates are laughable (…) Now that we have updated figures on coming expenses it’s time to update the deficit predictions:

* $1.65 trillion for 2009
* $1.6 trillion for 2010
* $1.95 trillion for 2011
* $2.2 trillion for 2012

I still think my numbers are assuming a very optimistic scenario and expect actual deficits to get even worse. And I repeat:

If President Obama keeps spending like this, and really wants to cut the deficit in half by 2013, he will at one point be faced with no other choice but to raise taxes on all Americans, rich, middle class, and poor. This is of course nothing new. Taxes have been rising almost consistently in the US for the past century.

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President Obama’s Budget for FY 2010 – A Continuation of the Bush Era

President Obama’s Budget for fiscal year 2010 (for some reason titled “A New Era of Responsibility”) in a nutshell:

  • Department of Defense and international expenses (spending on wars and occupations) will go up from $666 billion to $673 billion (under President Bush it grew from $316 billion to$666 billion)
  • Other appropriated programs will go up from $613 billion to $695 billion (under President Bush it grew from $298 billion to$613 billion)
  • Social Security expenses will go up from $662 billion to $695 billion (under President Bush it grew from $406 billion to$662 billion)
  • Medicare expenses will go up from $425 billion to $453 billion (under President Bush it grew from $216 billion to$425 billion)
  • Medicaid expenses will go up from $259 billion to $290 billion (under President Bush it grew from $117.9 billion to$259 billion)
  • Other mandatory program expenses will drop from $673 billion to $571 billion (under President Bush it grew from $290 billion to$673 billion)
  • Net interest will go up from $139 billion to $164 billion (under President Bush it dropped from $222.9 billion to$139 billion)
  • Disaster cost will go up from $4billion to $11 billion (under President Bush it went from $0 billion to$4 billion)

The total of proposed federal government expenses for FY 2010 is $3.552 trillion. President Obama is planning to spend more on virtually every government program, except for other mandatory programs.

During and after his campaign President Obama talked a lot about “tough choices” we will all have to make. I would like him to tell us where in this budget he made a single tough choice. He promised to go through the budget line by line and eliminate wasteful programs. Where did he do that in this budget? He is even proposing to spend more on wars and the military. A budget that President Bush inflated by more than 100% from $316 billion to$666 billion! I would like President Obama to answer one simple question: Why?

The president’s budget estimates tax receipts of $2.2 trillion, $2.4 trillion, $2.7 trillion, and $3 trillion for 2009, 2010, 2011, and 2012, respectively. These estimates are laughable. My projections for tax receipts, as I explained in The Coming US Tax Receipt Shortfall:

Federal tax receipts will fall to $2.25 trillion in 2009, to $2 trillion in 2010, to $1.75 trillion in 2011, and to $1.5 trillion in 2012.

Meanwhile there is no indication that government expenses will fall. Even with the current, now completely obsolete, budget estimates for government expenses, the Federal deficit would develop as follows:

  • $850 billion for 2009
  • $1 trillion for 2010
  • $1.3 trillion for 2011
  • $1.7 trillion for 2012

These are very optimistic figures. It wouldn’t be surprising if actual figures turned out to be around double or triple those numbers, unless a true change in policy were to occur.

Now that we have updated figures on coming expenses it’s time to update the deficit predictions:

  • $1.65 trillion for 2009
  • $1.6 trillion for 2010
  • $1.95 trillion for 2011
  • $2.2 trillion for 2012

If President Obama keeps spending like this, and really wants to cut the deficit in half by 2013, he will at one point be faced with no other choice but to raise taxes on all Americans, rich, middle class, and poor. This is of course nothing new. Taxes have been rising in the US for the past century.

It is certainly disappointing that Obama has now undoubtedly expressed his intention of continuing the irresponsible policies of the Bush era. But it is not really surprising. Obama has already promised us more of the same during his campaign and before taking office.

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The Coming US Tax Receipt Shortfall

The United States federal and state governments will be facing an unprecedented tax shortfall in the years to come. Declining corporate profits, asset values, and skyrocketing unemployment will cause the tax base to fall flat. It will most likely become evident in April of this year and get progressively worse in the years to come.

The common sense solution would be for the federal and state governments to once and for all abandon wasteful programs and departments and dramatically cut down on government expenses. Unfortunately this will not in any way be the consensus among Congress and the Executive Branch. They will see no other way out than to drastically raise taxes as a matter of “urgency” and “in the nations interest”. This bureaucratic intervention will of course do nothing but stifle growth and progress and thus have an additional adverse effect on tax receipts that will leave government bureaucrats puzzled.

Since it appears as though currently tax hikes are not feasible, the government will keep trying to finance the shortfall with a progressively increasing budget deficit.

Past recessions and depressions can give us an idea as to what the expected tax receipts over the next years might be.

  • From 1921 through 1923 federal tax receipts dropped from $6.6 billion to $3.9 billion, a drop of about 20% per year.
  • From 1930 through 1933 federal tax receipts dropped from $4 billion to $2 billion, a drop of about 17 % per year
  • From 2000 to 2003 federal tax receipts dropped from $2 trillion to $1.8 trillion, a drop of about 3.3% per year

The estimated receipts for 2008 are $2.5 trillion. It is save to assume that the upcoming tax shortfall will dwarf all precedents. But to make the outlook as optimistic as possible we shall assume a drop of just 10% per year:

Federal tax receipts will fall to $2.25 trillion in 2009, to $2 trillion in 2010, to $1.75 trillion in 2011, and to $1.5 trillion in 2012.

Meanwhile there is no indication that government expenses will fall. Even with the current, now completely obsolete, budget estimates for government expenses, the Federal deficit would develop as follows:

  • $850 billion for 2009
  • $1 trillion for 2010
  • $1.3 trillion for 2011
  • $1.7 trillion for 2012

These are very optimistic figures. It wouldn’t be surprising if actual figures turned out to be around double or triple those numbers, unless a true change in policy were to occur.

A true change would of course necessitate a complete, yet structured and well planned, abandonment of whole departments and government programs, including but not limited to Homeland Security, Education, Social Security, and Health and Human Services, along with a significant reduction of defense and military spending to sustainable levels around $100 billion per year.

This necessity has not reached the public in the slightest. Whoever utters it will be scorned as a neoliberal, callous, selfish miser who has nothing but his own interest in mind. It will take a complete collapse of this system in order for people to wake up to reality and listen.

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