Federal Deficits

At the end of last week the Congressional Budget Office released analysis of the impact Obama’s proposed budget would have on the Federal Deficit. the headlines blared comments about $2 trillion deficits. Here’s the CBO report: Director’s Blog Archive – Preliminary Analysis of the President’s Budget

The issue to bear in mind when thinking about the budget and the deficit is what impact things like stimulus will have over the longer term.

A big stimulus now will not have a dollar for dollar impact because it will return the economy to its potential growth pattern and thus create taxable wealth. This was the idea behind Bush’s tax cuts except they were poorly designed and didn’t have the fiscal stimulus effect that government spending has. So their tax generation was limited.

The other issue to think about is that Obam’s budget is a deliberate attempt to create a more balanced economy with less money flowing to upper income earners and more to plugging holes on the social contract. Spending on health care, for instance, is massively increased.

The problem that emerges is that as a society we have to think hard about our priorities. The budget proposes more spending on health, education, and the environment. Clearly achieving this re-balancing of the economy and undoing the past three decades of Reagan like neglect will call for more, and permanent, revenue streams.

Other than this the CBO contained no revelations.

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