| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

Follow Finfacts on Twitter

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : US Economy Last Updated: Feb 15, 2011 - 5:44 AM


Dr. Peter Morici: Budget demagoguery; White House says deficit in current year to spike to $1.65trn - - the largest dollar amount ever
By Professor Peter Morici
Feb 14, 2011 - 3:09 PM

Email this article
 Printer friendly page
On a White House White Board, Jack Lew, Director of the Office of Management and Budget, explains how the President's Budget will help then government live within its means, while still investing in America's future.

The White House projected Monday that the federal deficit would spike to $1.65trn in the current fiscal year, which ends on Sept 30th next - - the largest dollar amount ever.

President Obama is proposing $3.73trn in spending in the next fiscal year and a mix of tax and spending cuts that are expected to cut the federal deficit over 10 years.

The deficit is forecast to fall in fiscal year 2012 to $1.1trn, or 7% of GDP (gross domestic product) as a year-long payroll tax holiday and an extension of federal jobless benefits expire. By 2017, the budget plan says, the deficit would cut to $627bn, or 3% of GDP.

Dr. Peter Morici: Budget demagoguery; The annual exercise in obfuscation begins—the President has tabled his 2012 budget and the Congressional Republicans are responding. Neither party is serious about cutting spending.

The president’s budget document shows a $1.6trn deficit for 2011, and serves up new “investments” in education, transportation and R&D, while offering to slice less than $100bn mostly from domestic discretionary spending.

House Republicans, for their part, are squabbling among themselves about cuts in the same range, as both sides really focus on only 15% of the budget—discretionary spending, excluding security and defense.

Democrats will stubbornly argue the economic recovery will collapse if the deficit is cut by any more than $100bn, and Republicans will offer to privatize Medicaid and Medicare, as if vouchers and private spending accounts will help the nation’s poor and elderly obtain lower drug and hospital rates than can the government.

The Tea Party’s denials notwithstanding—the failure of both sides to offer meaningful proposals to cut federal health care spending and Social Security are setting up Americans for a giant tax increase that will kill US competitiveness, and damn the nation to Euro-style slow growth and high unemployment.

In 2007, the year before the recession, with Bush tax cuts in place and wars in Afghanistan and Iraq at full tilt, government spending and the deficit were was 19.6% of GDP and $161bn, respectively. For 2011, with the economy recovered, federal spending’s share will exceed 25% and the deficit will be nearly ten times larger.

The Democrats took control of the Congress in 2007 and used the recession as cover to permanently increased spending on the federal entitlements, regulatory bureaucracy and silly industrial policies, like high-speed rail and electric cars. Now the President won’t give much of that back and will ultimately seek dramatically higher taxes.

Entitlements—mostly Social Security, Medicaid, Medicare--consume about 60% of the budget, and over the next decade that figure will rise to about 68%. Without curbing spending in those areas, there is simply no way out of Washington’s fiscal mess.

When Social Security was established, life expectancy was 64 and the retirement age was set at 65, whereas today life expectancy is 78 and the retirement age reaches 67 in 2027 under current law.

With the baby boom retiring, payroll taxes no longer fund benefits, and by 2118, payments will exceed those taxes plus interest earned by the trust fund, and start running down the capital. Eventually, the system will be broke, even with higher payroll taxes, under any realistic set of economic growth assumptions.

It is time to get serious. Increase the retirement age to 70 for everyone under age 55. Ten years is plenty to plan for that. Set aside jobs in municipalities—for example, maintenance positions at the schools or clerking in county offices—for those individuals over 60 in physically rigorous occupations that can’t find alternative work.

The United States spends 19% of GDP on health care, while Germany with a system of mandatory private insurance—note the similarity to Obama Care—spends 12%. The United States simply can’t afford that competitive disadvantage.

The President’s new health care law is unlikely to deliver promised cuts in Medicare reimbursements to providers, will likely push US spending above 20% of GDP and keep the federal deficit in the range of $1.5trn .Don’t believe OMB deficit projections to the contrary—those have proven consistently too optimistic.

It is high time for real reform. Limit prices Americans are charged for drugs to what the Germans pay, slice doctors’ salaries and overhead paid to hospitals and private health insurance bureaucracies to German levels, and implement genuine malpractice reform.

Alas, members of the AMA, pharmaceutical and health executives, and tort lawyers contribute generously to campaigns of Donkeys and Elephants alike, making Mules of the rest of us.

Sadly, most Americans are going to wind up paying higher taxes and not getting much for it but more budget troubles, high unemployment and limited futures for their children.

Jack Lew, White House budget director, gives a preview of the President's 2012 budget:

Senator Robert Portman, (R-OH), discusses what to expect from the 2012 budget:

Peter Morici,

Professor, Robert H. Smith School of Business, University of Maryland,

College Park, MD 20742-1815,

703 549 4338 Phone

703 618 4338 Cell Phone

pmorici@rhsmith.umd.edu

http://www.smith.umd.edu/lbpp/faculty/morici.html

http://www.smith.umd.edu/faculty/pmorici/cv_pmorici.htm

Related Articles
Related Articles


© Copyright 2011 by Finfacts.com

Top of Page

US Economy
Latest Headlines
US jobs rose by 215,000 in July; Unemployment rate stable at 5.3%
US economy grew at weak pace in Q2 2015 - Worst expansion since 1945
Decoupling of per capita GDP, productivity, private employment, and median family income in America
US economy stumbles again in 2015
Income gap highest in 30 years; No inequality rise in best-paying US firms
Fed minutes raise doubts about fragility of US recovery
Senate Democrats block trade deal authority for Obama
Five firms held 25% of top US non-financial companies cash pile in 2014
US added 223,000 jobs in April; Broad jobless rate at 10.8%
Investment struggles as dividends/ share buybacks at top US firms to exceed $1tn in 2015
US economic growth plunged in Q1 2015
Why the Fed may (almost) never raise interest rates
US jobless rate falls to 5.5%; Broad rate at 11%; Participation rate at 1978 level
US added 257,000 jobs in January; Broad jobless rate at 11.3%
US economy will soon see best years in a decade
US annualised GDP slowed sharply in final quarter 2014
US budget deficit to fall to 2.6% of GDP in 2015
US added 252,000 jobs in December; Jobless rate falls to 5.6%
US adds 321,000 jobs in November; Private sector adds 10.9m jobs in 57 months of growth
US manufacturing slowed in November
US retail spending over Thanksgiving weekend fell 11%
US consumer spending weak in October; Business investment fell again
US third-quarter GDP revised up to 3.9% annualised rate
After destroying banking secrecy US helps Swiss exporters
US oil imports from OPEC cartel at 30-year low
Tax-inverted "Irish" firm Actavis agrees to buy US Botox maker Allergan
US nonfarm payroll employment rose 214,000 in October' Jobless @ 6-year low
Swiss bankers await fallout of US tax evasion acquittal
Two PMI reports give contrasting trends on US manufacturing
US GDP increased at annualised 3.5% in third quarter of 2014
US city home price growth slowed again in August; Consumer confidence rebounded in September
US new orders for manufactured durable goods fell again in September
Loans to buy US shares at record highs
Global markets slide; US industrial production best in 3 years & jobless claims in 14-year low
US federal budget deficit dips to 2.9% of GDP in fiscal year 2014
US added 248,000 jobs in September; Jobless rate falls to 5.9%
US set to become world’s leading liquid petroleum producer again
Obama issues new rules to combat tax inversions
US Securities and Exchange Commission to pay $30m award to foreign whistleblower
Typical American household income in 2013 was below the 1989 level