Friday, June 10, 2011

Federal budget update: modest improvement


With today's release of May federal budget data, we see the continuation of a healthy trend: federal revenues have increased by 10.7% in the past year, while spending has increased by only 4.4%. Revenues are outpacing spending, believe it or not, and that's happening without any increase in tax rates. As a result, the 12-mo. rolling sum of the federal budget deficit has declined from $1.36 trillion to $1.29 trillion over the past year. It's still monumentally large, of course, but at least it is shrinking modestly instead of increasing further.

Revenues almost always pick up as the economy recovers, and this business cycle is no exception. Indeed, the pickup this time has been more robust than what followed in the wake of the 2001 recession. Growth creates more jobs, more income, and more profits, and these in turn are what generate higher revenues.

The lesson for politicians is simple: we can fix the budget deficit by reining in the growth of spending and reducing the burden of government, and by pursuing policies that help the economy grow. As today's WSJ editorial notes, Texas is living proof that smaller government and a freer economy can work miracles: "37% of all net new American jobs since the recovery began were created in Texas."

13 comments:

sgt.red.blue.red said...

If they cut taxes, growth & would really take off.

Benjamin said...

Well, Texas still has an oil industry. I am all for cutting federal civilin and militry agencies by 25 perent across the board. But Texas is a net beneficiary of federal spending and oil prices.

John said...

Benj,

Venezuela has an oil industry and high federal spending too.

Benjamin said...

John-

Good point. Texans do deserve some credit, and I agree with their small government approach.

Still, they send a lot less to DC than they get back in federal outlays.

honestcreditguy said...

Time to cut back on the military complex because war is a racket..

The Govt. is inept, they need to tax the inequalities that have arisen from lax regulation, SEC sleeping, Offshore tax havens..The rich are going to have to pay up for all their greed...

The bubble was all about greed...Wall street, banks, Govt. regulators and the Govt. itself created it, enabled it and drove it over the cliff..

When we go back to simple living...then you will have a place that is just, free and fair...until then the pigmen of Wall street, Chicago Comm. Market, banks and Govt. will roam free to decimate the saver, the thinker and the people who really live...

How many people when they are dying wish for more reuturn or yield. More likely they wish for reading with their children more, helping your fellow man, not stealing and pilfering like they do...

As I have said, the credit debt cycle is going to end...better sooner than later....time for reality.. I look forward to seeing the elites looking for water in a dry desert

puffer said...

Scott -

Very curious how you would respond to this little piece, "It's The Debt, Dummy" (The country needs some healthy debate on this topic) --

http://www.zerohedge.com/article/guest-post-its-debt-dummy

John said...

Benjamin:
I believe Texas is a net donor state. Here is the latest data I'm aware of:

http://www.taxfoundation.org/taxdata/show/266.html

Texas bucks the red state trend, which is to be subsidized by the federal government so red states can attract anti-union businesses and have right to work laws.

Blue states, for example, New Jersey gets a lousy $0.61 back from the feds for every dollar sent to Washington, are forced to fund red state projects & activities the lower-wage states can't afford.

Schwartzennegger (AC is a donor state) complained about this a couple years ago.

John said...

37% of new jobs created in Texas?

What sort of jobs are they?

Dr William J McKibbin said...

Scott, you said, "The lesson for politicians is simple: we can fix the budget deficit by reining in the growth of spending and reducing the burden of government, and by pursuing policies that help the economy grow." Of course, the same words should be heard by California's governor and legislature -- word for word...

PerformanceSpeaksForItself said...

Careful praising Texas' lack of employment regulation. For example, an employer in Texas can require their employees to commit fraud, and if the employee refuses, they can be fired or demoted with impunity.

John said...

Portside John,

I would suggest they are better than those (if any) in upstate NY. Extend the northern Pa. border across NY to Conn. and the northern part of NY might just qualify as the poorest state in the country...I think if I were job hunting, I would rather do it in Texas.

brodero said...

Texas is on the clock....they have chosen to sacrifice their school system with no increased revenues ( actual decreases)...68% of the over 65 age group is non-Hispanic whites where only 33% of the under
18 age group is non hispanic whites...Over 65 whites who have no interest in the public school system and a growing Hispanic populace who need an adequate school system

Scott Grannis said...

puffer: Re debt; I think debt is very misunderstood. Debt is an agreement to exchange future cash flows. Debt does not increase demand, but debt can make companies and economies more efficient (and of course too much debt can also create problems). Creating new debt is not necessarily good, and wiping out debt is not necessarily bad. Debt is a zero-sum game for the most part. Wiping out debt is good for debtors and bad for creditors, but not necessarily bad for an economy.