What have you always wondered about the economy? Tell us

$280 billion deficit is nothing to celebrate

Marketplace Staff Jul 12, 2006

KAI RYSSDAL: The Treasury Department’s going to report on the June budget numbers tomorrow. But in all honesty it’s going to be a bit anti-climactic. The president delivered the big budget news himself at the White House yesterday. Tax revenues are way up. So far up that the budget deficit this year will be almost 130 billion dollars smaller than anyone thought. Commentator Robert Reich says that’s great. But the Administration’s numbers still don’t add up.

ROBERT REICH: Frankly I don’t blame the President for making the most of every bit of good news he can find. But it’s important to put this good news in context.

This year’s federal budget deficit will still total between $280 and $300 billion — better than the $318 billion hole that was expected but not exactly cause for celebration.

Federal spending is still way out of control, at a higher rate and a higher percent of the overall economy than a decade ago. And tax collections are running $100 billion less than what the White House projected five years ago when it sold the tax cuts. In fact, overall revenues have barely reached the level they were in 2000.

The basic question is whether those tax cuts have helped or hurt the economy. The best way to find out is to compare the current recovery to every previous one since World War II.

What do we find? Real revenue growth in this one is trailing all previous recoveries. So is the rate of new investment. So is the rate of job creation. You don’t have to have total recall to remember that after Bill Clinton raised taxes and cut spending, we had faster revenue growth than now, a higher rate of new investment, more jobs, and a more rapidly vanishing deficit.

But the biggest difference between then and now is the baby boomers are now much closer to retirement, which means it’s even more important now to cut spending and raise taxes in preparation for the upcoming drain on Social Security and Medicare. Instead, this administration continues to borrow against Social Security, spend like mad, and try for more tax cuts.

The President’s supply-side tax cuts have had only one conspicuously positive effect. They’ve helped people earning over $200,000 a year become fabulously richer.

These people do have cause to celebrate. The rest of us should worry.

RYSSDAL: Robert Reich was Secretary of Labor in the first Clinton Administration. He’s now a professor of public policy at the University of California-Berkeley.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.