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Good News - Largest Decline in Federal Deficit since end of World War II
05-28-2013, 04:01 PM
Post: #1
Good News - Largest Decline in Federal Deficit since end of World War II
Good News - Largest Decline in Federal Deficit since end of World War II

With Washington more interested in chasing overblown fiticious "scandels" the good news on the deficit hardly gets reported.

For much of the past two years, deficits, debts, revenues, and spending were all elite Washington (and New York) wanted to talk about. Endless pixels were spilled on the maneuverings surrounding the debt-limit negotiations, the various commissions and efforts to forge a grand bargain, the approach of the fiscal cliff, and the brutal logic of the sequester.

A funny thing has happened on the way to America’s becoming the next Greece. Even as Washington failed—again, and again, and again—to strike a grand bargain or engage in rational policymaking, there has been immense, unprecedented progress in reducing the short-term deficit. It turns out the miracle cures for deficits aren’t grand bargains. Rather, the cures are sustained even slow growth and a willingness to a slight increase in taxes for the most wealhty - who still enjoy some of the lowest tax rates in the world and in U.S. history. Back to the Clinton tax days but only for the top brackets when we had a strong economy and a surplus.

The federal deficit is headed to 4 percent of GDP, less than half the 10 percent of 2009 according to the nonpartisan Congressional Budget Office (CBO). We are having the most rapid deficit reduction since World War II. Revenues are higher and the “bail outs” are costing almost nothing compared to the original projections with big profits from the bank rescues and now big paybacks from Fannie Mae and Freddie Mac as they have been having large profits they are turning over to the Treasury.

Under current policy—i.e., absent some new grand bargain on taxes and spending—CBO said the annual deficit, measured as a percentage of GDP, would decline in the next two years, checking in at a low 2.1 percent of GDP in 2015. However, rises again afterwards due to the large number of aging Americans driving up Medicare costs and Social Security benefits. In about 10-years the debt becomes a serious issue again without entitlement reforms.

Under President Obama’s Budget Proposal which includes investing for growth in education, private-pubic infrastructure bank, and scientific research, and canceling the sequester cuts, the CBO on 5/17/13 projects the deficits as a % of GDP would be: 4.2% in 2013, 4.1% in 2014, 2.5% in 2015, 2.2% in 2016 and 2.0% in 2017-2018. But then would increase again, remaining above 2 percent of GDP through 2023.

The increased revenue would include from a cap on the extent to which certain deductions and exclusions can reduce a taxpayer’s income tax liability, limiting the amount to no more than 28 percent of those deductions and exclusions. The 28% bracket is on taxable income (after all deductions) of over $223,051 in 2013 for married couples filing joint. The bracket levels increase each year based on inflation.

Part of the decrease in spending would come from converting the military to meet today’s needs instead of being able to fight two massive ground wars at once as well as reducing the nuclear arsenal etc. We currently spend more on defense than the next 10 countries combined. Defense spending accounts for about 20 percent of all federal spending — nearly as much as Social Security, or the combined spending for Medicare and Medicaid.

The complete nonpartisan report on the Obama Budget is at With the political fighting who knows what will be passed - if anything - and any tax increase is opposed by Republicans and many of the wealthy. However, the Obama Budget reduces the deficit to a reasonable level balanced with spending on growth that benefits the economy long-term instead of current situation of falling behind in critical areas to China etc.

Slowing the growth of Medicare is a critical issue to return to a balanced budget or surplus like in the Clinton years, along with to a lesser extent, Social Security reforms. Social Security was based on retiire at age 65 and die at about 70. But today we may live to 90-100 years of age while expecting to get benefits.

The Treasury continues to be able to borrow at very low cost with continuing demand by investors for debt 2-3 times the amount the Treasury offers at its auctions.

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