The Deficit blog

                                                           The Deficit blog


                                      By Justin Winn



               In order to restore economic stability, policymakers must focus on restoring the institutional role of governing. Government can provide a stable environment for economic growth when it can be depended upon to maintain the stability of the currency, enforce and defend property rights, and provide oversight that assures private citizens that their transaction partners in the marketplace are held accountable.This will allow market participants to begin putting their resources back to work in the areas where they are most beneficial.After decades of lecturing developing countries on how to emerge from economic crisis and stimulate economic growth through sound government policies, U.S. policymakers and some economists are throwing out all their advice during the first major crisis test. This is particularly true when it comes to advice on accumulating more and more debt.Economic downturns, while painful, do afford an opportunity to root out waste and inefficient spending both in the public and private sectors. This is because the opportunity cost of making fundamental reforms is lower during downturns.the urgent need for fiscal discipline. But Congress's recent enactment of the American Recovery and Reinvestment Act and the President's proposed budget makes the goals of a sustainable budget and addressing the nation's longer-term fiscal priorities, such as entitlement liabilities, even more elusive. The Congressional Budget Office's recent "Budget and Economic Outlook" estimated the 2009 budget deficit to be $1.6 trillion 4 The Administration's recently released mid-session review from the Office of Management and Budget estimates that over the next 10 years the accumulated deficits will total $9 trillion. 5 This means that the debt held by the public will be a staggering 77 percent of GDP in 2019. If the debt level continues to grow faster than the economy, the U.S. will find that it owes more than it makes.

The first two points demonstrate a commitment to fiscal responsibility and give an opportunity to review the purposes of agencies in light of current needs and changing technology. This will help to increase the level of accountability in both the private and public sectors, as evaluations shine the light on how operations have been conducted. Demonstrating fiscal responsibility also signals a commitment to supporting the U.S. currency, 15 which will reassure America's trading partners.The third point will help restore credibility to U.S. financial institutions. It is well past time to modernize this country's financial regulatory system so that it can meet the challenges of today rather than reflect the structure of a market that no longer exists. The new system should be flexible and encourage the kind of innovation that has helped to provide low-cost financial services to millions of consumers, while also providing the credit that is so necessary for economic growth. It is important that the recent stabilization in the financial sector and other legislative agendas do not change the priority of this reform effort.The fourth, reform of the tax code, should focus on simplification, transparency of the tax burden, broadening the base, and lowering overall rates. Reducing the layers and complexity of the tax code frees up resources that citizens can put to more productive use. The Tax Foundation estimated that in 2005, individuals and non-profits spent six billion hours complying with the federal tax code. 16 This amounts to an additional 22 cents per dollar of tax collected--which means that American citizens paid $1.22 for every $1 that the government received in tax revenue.

Simplifying the tax code and streamlining the collection process would allow taxpayers to save this time and money, effectively giving them more disposable income. Increased disposable income can help people build wealth. Wealth is built by investing in assets. With house prices no longer rapidly appreciating, more productive asset investments might be in infrastructure, energy, health technology, and other assets of the future.Reducing marginal tax rates on income both at the corporate and individual levels increases the benefits that individuals and corporations receive from using their scarce resources to earn that income. This increased incentive to use resources productively creates greater economic growth. As the economy grows, more investments can be made, which in turn create more opportunities for growth, employment, and higher standards of living. Furthermore, economic growth generates higher tax revenues that support the governing institutions. This positive feedback effect is in fact a main motivation for many countries to undertake fundamental tax reforms.

“Since 2010,” says the Obama budget proposal, “federal deficits have shrunk at an historic pace—the most rapid sustained deficit reduction since the period just after World War II. The turn away from austerity in 2014 was ac­companied by another steep drop in the deficit, bringing it to 2.8 percent of GDP—the lowest level since 2007, about one-third the size of the deficit the president inherited, and below the 40-year average.”

Obama took office on Jan. 20, 2009, in the fourth month of fiscal 2009. On Feb. 17, 2009, he signed the American Recovery and Reinvestment Act (ARRA), his economic stimulus bill.

“When ARRA was being considered, the Congressional Budget Office (CBO) and the staff of the Joint Committee on Taxation estimated that it would increase budget deficits by $787 billion between fiscal years 2009 and 2019,” the CBO said in a report published last year. “CBO now estimates that the total impact over the 2009–2019 period will amount to about $830 billion. By CBO’s estimate, close to half of that impact occurred in fiscal year 2010, and more than 95 percent of ARRA’s budgetary impact was realized by the end of December 2013.”

On March 11, 2009, Obama signed the Omnibus Appropriations Act of 2009, which the Washington Post described as “a $410 billion spending bill to fund most of the federal government for the remainder of the year.”

In fiscal 2008, the last full fiscal year when George W. Bush was president, the federal deficit was $458.6 billion, according to the historical tables published by the White House OMB. In fiscal 2009, presided over by both Bush and Obama, the deficit was $1.4127 trillion. In 2010, it was $1.2944. In 2011, it was $1.2996 trillion. In 2012, it was $1.0870 trillion. In 2013, it was $679.5 billion. In 2014, it was $484.6 billion. And, in 2015, the OMB is estimating it will be $582.5 billion.

The fiscal 2008 deficit of $458.6 billion was 3.1 percent of GDP, according to the OMB. The OMB estimates that the $582.5 billion deficit it is projecting for this year will be 3.2 percent of GDP.

Since Obama took office, the federal debt has climbed from $10,626,877,048,913.08 to $18,082,294,157,510.20--an increase of $7,455,417,108,597.12.

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