Home > Federal, State > Bait and Switch: Raising the National Deficit by Stealth and the sorry fiscal condition of state and municipal finances

Bait and Switch: Raising the National Deficit by Stealth and the sorry fiscal condition of state and municipal finances

June 28, 2010

Bait and Switch: Raising the National Deficit by Stealth

Of Thee I Sing 1776by Of Thee I Sing 1776

Like a relentlessly advancing cancer, the news about the US fiscal deficit and the accumulated debt, which is its result, keeps getting worse.  Every week the press discloses some supposedly “new” information about either the federal budget, economic failure, projections of economic growth, the effects of the so-called “doc fix” (about which we have written several times), the sorry fiscal condition of state and municipal finances, or some further jobs stimulus proposal, all of which pile more costs on this nation that, if it were a private business, would be considered broke.

concept of bankruptcy

Before looking at the most recent spate of deficit and debt related news, let us start with the CBO’s updated March 2010 report which estimated that the cumulative effects of the Administration’s budget proposals would add $9.7 trillion to our current deficit of $14 trillion (an amount equal to approximately ninety percent of our annual GDP and clearly approaching the danger zone).  This amount does not include any spending for enacting climate legislation or the effect of rising interest rates to service our debt or spending for contingencies from unplanned events which will inevitably occur.

Moreover, it projects economic growth every year at four percent when we have had only two quarters of growth at four percent or higher in the past five years and, at least since 1982, have never had four consecutive years of growth as high as four percent per annum.  That overly optimistic CBO assumption if not realized will raise the deficit and the accumulated debt, perhaps by trillions of dollars.

In recent days we see once again the fantasy of the most recent budget the president presented.  After just a few months it is outdated.  Mr. Obama has just asked Congress for an additional $50 billion in aid to state governments.  It is uncontested that state and local governments are in terrible fiscal condition and, of course, they can’t print money to inflate away their accumulated debts.  Cumulative state shortfalls in 2009 and 2010 alone are approximately $310 billion and projections for 2011 and 2012 combined are for an additional $300 billion.

State governments have in the past few years either borrowed with abandon or resorted to accounting gimmickry to approach balancing their budgets.  They have consistently looked for new sources of tax revenue or raised taxes on existing sources, making a reality of Ronald Reagan’s statement about government: “if it moves, tax it.”

(more…) http://biggovernment.com/oftheeising/2010/06/21/bait-and-switch-raising-the-national-deficit-by-stealth/#more-134422

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