WASHINGTON (Talon News) — The Federal deficit is projected to hit $455 billion for 2003 and then $475 billion in 2004 according to the Office of Management and Budget. OMB Director Josh Bolten said in a press conference Tuesday that although the deficits are large in nominal terms and a legitimate subject of concern, today’s deficits are manageable with continued pro-growth economic policies and serious spending discipline.
“[A] $455 billion deficit, while certainly higher than anyone would like, constitutes 4.2 percent of the economy,” said Bolten. “This is well below the post-World War II peak of 6 percent. So as a percentage of the overall economy, the deficit, while higher than average, is nowhere near a record…”
The figures for 2003 take into account the Bush administration’s tax cut plan, the war in Iraq, homeland security, and the war on terror. “The President’s top priorities are winning the war on terror, protecting the homeland, and growing the economy,” Bolten said. “You can be sure that the President will ask Congress to spend whatever is necessary to support our troops.”
Critics of the Bush administration are quick to blame the president’s tax cut plan for causing the deficit. Bolten stated that even without the tax cuts there would still be a deficit. He also pointed out that without the economic stimulus of tax cuts, future economic growth would be hampered, leading to even higher deficits.
“It’s important to understand that without any of the president’s tax cuts, the deficit this year would be at least $278 billion,” he said. “Had Congress not enacted the President’s three tax relief packages, moreover, the economy would be substantially weaker than it is, and there would have been substantially greater job losses.”
A study published in 1996 by William A. Niskanen and Stephen Moore, chairman and director respectively of fiscal policy studies at the Cato Institute, concluded that the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
According to the study, real economic growth averaged 3.2 percent during the Reagan years versus 2.8 percent during the Ford-Carter years and 2.1 percent during the Bush-Clinton years. It also said that real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years.
As a result of the Reagan plan, nominal federal revenues doubled in the 1980s from $517 billion to $1.031 trillion. The federal budget was not cut by congress under Reagan. In fact, it was 69 percent larger when Reagan left office. The spending increase resulted in a budget deficit of $101 billion in 1981 which peaked at $236 billion in 1983 but, as a result of a booming economy and increased federal revenues, it fell to $141 billion in 1989.
The Cato study concluded that the 1980s were years of economic progress, not decline. Real GDP grew by about one-third in the 1980s. The economic gains were widely distributed among income groups, with every income quintile, from the richest fifth to the poorest fifth, gaining ground in the Reagan years. The Reagan tax cuts were not a primary cause of the eruption of the deficit in the 1980s. The main two causes were an unexpectedly sharp reduction in inflation in the early 1980s that led to large real increases in federal spending, and a nearly $1 trillion military build-up during the last phase of the cold war.
“The tax cuts proposed by [President Bush] and enacted by Congress are not the problem — they are, and will be, part of the solution,” said Bolten. “The most effective way to lower future deficits is to grow the economy. And the president’s tax packages have been well designed to do precisely that.”
Pointing out a projected deficit in 2006 that would be half of this year’s figure, Director Bolten was optimistic about future economic growth and increased revenues. He did, however, urge caution.
“The levels we are at now, that is, 4.2 percent of GDP, and the effect that that’s having on interest rates, showing that it is not currently a problem for this economy,” he said. “But we do need to be careful about it. [We] need to make sure we are pursuing policies of growth in the economy [and] restraint in spending.”