Fiscal Flameout???

Re(1): 'G.W. Bush - Our Third Worst President', Liberal and Loving It, Author
Re(2): Comment by ‘NoVA Democrat/James Martin’, www.vaprogressive.com
Re(3): Comment by Anonymous

Note: Check out www.vaprogressive.com. It is a very attractive and viable site for progressive policies. That is, he ain’t no Moonbat.

Note: The ‘My Flameouts’ link section is intended to be a spot where stuff I have written proves to be inaccurate. I think all bloggers should have such a section. On this topic, the 'March 2006 Treasury Budget Statement' will provide a good mid term review. If my economic and budget projections prove to be wildly inaccurate I will enthusiastically place this and the other posts on this subject in that link list!!!

Comments were provided to my response in a ‘Liberal and Loving It’ post. Here is where I am coming from:

To answer the comment by ‘NoVA Democrat/James Martin’:

Like President Clinton’s tax increase, President Bush’s tax cut was retroactive – i.e. it was passed in mid-2003, but took effect in January 2003 (CY2003). Therefore, for average slugs like me and you the adjustment was noted on April 15, 2004. That is why I use the FY2004 Federal Budget numbers – whose fiscal year begins on October 1 and ends September 30. So, FY2004 started 2003/10/01 and ended 2004/09/30.

Since FY2004 the CBO budget deficit numbers have been wildly inaccurate. They do not incorporate the economic growth that occurs when freed capital is invested in the economy. They do not incorporate the changes that occur as a result of Dividend and Capital Gains tax cuts. In the case of dividends the new tax code resulted in the reemergence of dividend investing – and dividends are paid by companies with taxable profits, unlike capital gains. Finally, they do not incorporate the personal changes in behavior that occur when a tax seems ‘fairer’ (in my example, I dramatically changed my behavior after Clinton’s tax increase by carefully reviewing every deduction and break I could get – now, I am far less likely to spend the time).

Additionally, the investment losses of CY2001/2 have been largely written off by the gains since. Thus, investors have begun to pay capital gains taxes toward the US Treasury.

And, yes, my numbers are ratios and estimates from mid-year treasury numbers and CBO reviews and GDP growth and unemployment numbers. I would not call them super-scientific, but I am willing to risk a ‘Flameout’ on them given that America doesn’t get a city wiped out via a WMD attack or something (I’ll even accept another Katrina event in FY2006).

I have won bets of lunches and cold hard cash by wagering on the deficit numbers of the past two years.

So here is a table of the progress being made:

Fiscal Year	GDP	GDP Growth	Unemployment	CBO	Me	Actual
FY2004	11,743	4.2%	5.5%	520	390	412
FY2005	12,479	3.5%	5.1%	427	325	318
FY2006	13,400	3.5%	4.8%	423	286

So, my questions are:
Why do you trust the CBO numbers?
Since the tax cuts, they have been off by more than a 100 Billion.

Where do you think we are heading?
The stock market is growing rapidly this year (Dividends and Capital Gains).
The Corporate Income tax revenues have been growing rapidly.
The Personal Income tax revenues have been growing rapidly.
And, wages are finally growing for all parts of the economic spectrum.

To answer Anonymous:

You are 100% correct, President Bush and everyone else are not guaranteeing a balanced budget.. In the 2004 election campaign President Bush promised to cut the annual budget deficit in half by his last budget – which will be FY2009. Given that he was using the CBO estimate of 520 Billion for FY2004 that means that he only has to cut the annual deficit to 260 Billion by FY2009. We ran a deficit of 318 Billion last fiscal year. What are the odds that he will shave 58 Billion in three years – pretty good, or impossible?

In addition, fiscal conservatives are now pressuring Congress to reduce spending and wipe out earmark abuses. The Congress and the Administration will not be able to blow this off for three years.

Now, let us adjust the above table a bit to make something clear:

Fiscal Year	GDP	Tax Revenue	Deficit	% of GDP	% of Tax Revenue
FY2004	11,743	1,798	412	3.51%	22.91%
FY2005	12,479	2,053	318	2.55%	15.49%
FY2006	13,400	2,285	286	2.13%	12.52%

Don’t get me wrong… Borrowing even 10% of your annual total revenues to cover expenses is very, very bad and unsustainable… But, the numbers are going in the right direction.

So, here is a long term bet… Given that a city is not wiped out via terrorism or war I think it is a relatively safe bet that the annual deficit will be wiped out by the rapid, but sustainable, growth of the economy. GDP growth of 3.5% to 4.5% is considered sustainable – the dot.com boom growth of 6% - 7% was not.