What does it all mean? Well, what worries me is that we have been on a pretty strong economic run in the past three years. During this time tax revenues have increased as business and individuals recovered and made more taxable income. Great.
Deficit reduction during this period was to be expected. More revenues and less demand on some programs that contribute to the deficit should provide an environment where fiscal progress can (could) be made. Yes, the outlays for the war on terror impacted this equation, but this comes back to the guns and butter analogy. If we are gonna buy guns, maybe it is time for the Nation to cut back on domestic spending.
The Republicans have not only not done so, they have passed and the President has signed, massive new programs for everything from Medicare drugs to highways, farm aid and fluff everywhere. Earmarks are a way of life. The deficits don't matter, I guess, cause congress won't do anything about spending and Bush won't veto anything...not anything at all.
Now if the present indicators play out during the summer, we could see some economic weakness. The markets are not happy campers right now. If the economy weakens tax revenues could fall. If spending is not curbed, then we get back into a very difficult position. It would be nice to cut taxes to stimulate the economy, but we can't afford to do so because we are running larger and larger deficits (having never really dug out of the last trough). Interest rates get higher, costing more in interest for government, imposing possible stagflation. Workers get nervous cause inflation returns and they can't make enough to feel they are getting ahead. Almost the worst of all economic worlds politically. And very bad news for the Republicans in November...
Will this happen? I don't know. Could it? Sure.
Is the failure of Congress and the President to send any kind of meaningful signal in controlling spending important? Yes. IMHO |
