The budget for fiscal year 2007 is in the news after its release on February 6, even as the Republican Congress's budget cuts and proposed tax cuts linger on. The Bush budget proposal, see here, bolsters military and security spending to further Bush's occupation of Iraq and anti-terrorism measures at the cost of many important domestic priorities. The Pentagon's budget would increase by almost 7%, while domestic programs and foreign aid would decline by 0.5%. Driving the Pentagon's budget increases are the costs of Bush's occupation of Iraq and the Pentagon's desire for big weapons programs. See David Cloud & Joel Brinkley, Broad Ripples of Iraq War in Budgets of 2 Agencies, Feb. 7, 2006 New York Times at A14. The budget resurrects the idea of drilling in the pristine Arctic National Wildlife Refuge (claiming an additional $4 billion in 5 year savings), but doesn't even suggest increasing the CAFE standards for car mileage to levels that other countries have already achieved! It proposes even more availability of Roth IRAs for wealthy individuals who will simply switch their investments from elsewhere to these tax-favored accounts, all in order to get a short-term boost in revenues--curing a short-term revenue shortfall now with long-term reductions in tax receipts later. Bush's 2004 proposal for almost a 4% increase in education funding has morphed into a 4% cut for fiscal year 2007 (and even larger cuts later) on top of the cuts to student loans and other programs already passed for the 2006 budget. Bush continues to call for making all of the tax cuts already enacted as temporary provisions permanent, a giveaway to the wealthy, see Robin Toner, In Budget, Bush Holds Fast to a Policy of Tax Cutting, Feb. 7, 2006 New York Times at A14, while he recommends funding cuts for numerous programs that help the truly needy, such as elimination of the Commodity Supplemental Food Program that provides monthly bundles of cheese, peanut butter and other staples to 400,000 low income elderly and huge cuts to the Department of Housing and Urban Development programs that help low-income elderly and low-income people with disabilities. In other words, this White House budget proposal is a disaster that should be dead on arrival.
You need only scan the titles of articles in the Wall Street Journal to see the way the winds of war will affect domestic programs that are tremendously important to the quality of everyday Americans' lives. See, e.g., Deborah Solomon & John D. McKinnon, Bush Would Boost Defense, Security in Budget Plan, Feb. 7, 2006 Wall St. J. at A1 (noting a proposed increase of almost 7% in Pentagon budget compared to a decline of 0.5% in domestic and foreign aid budgets); Robert Block, White House Seeks Big Increase for Border Security, Feb. 7, 2006 Wall St. J., at A16 (noting attempt to win over conservative Republicans hoping to block immigration into the U.S. with a 10% increase in border and transportation security); David Rogers, Republicans Face Difficult Choices, Feb. 7, 2006 Wall St. J. at A16 (noting Olympia Snowe's comment that the budget "leaves some of our most disadvantaged people at risk" and suggesting that Republicans only need to think about the impact of their tax and budget policies when facing elections); Anna Wilde Mathews et al, New and Higher Fees are Sought to Finance Regulatory Agencies, Feb. 7, 2006 Wall St. J. at A16 (noting proposals for passengers and airlines to pay more for government screening, consumers to pay more for phone services, and producers to pay more to support the Food and Drug Administration's inspection program); Robert Guy Matthews, Revenue from Corporate Taxes Could Decline, Feb. 7, 2006 Wall St. J. at A16 (noting expectation that corporate taxes will raise less than 11% of federal revenues in 2007, compared to almost 13% in 2005, with proposals to increase investment deductions and research and experimentation credits); and Sarah Lueck, Changes Proposed for Medicare Would Slam Nation's Hospitals, Feb. 7, 2006 Wall St. J. at A16 (noting Dick Davidson's (American Hospital Association) comment that the proposals are "a step backwards in providing access to care for all Americans").
The Bush budget proposal is especially severe in its proposals for medical spending. The proposal cuts Medicare by $35.89 billion over five years, with about $30 billion of that from reduced payments to medical providers. Id. Nursing-home payments would be reduced by $5 billion, and hospital payments would be reduced by $8 billion. The administration proposal would continue to increase premiums paid by Medicare beneficiaries by eliminating the indexation of the income threshold for premium payments. In other words, Bush wants to do to Medicare what is already happening in the Alternative Minimum Tax where lack of indexation results in "bracket creep" downwards to lower and lower income Americans. Under Bush's proposal, 3.8 million Americans would pay higher premiums of as much as $262 a month more by 2016, id., when Mr. Bush would be long out of the White House and hard to hold accountable for the damage.
Note that this is on top of programs that have already reduced state and federal spending on Medicaid. In Missouri, one program that used to help families that were at 75% of the poverty level or below now only helps those that are at 22% of the poverty level. That means that to qualify for Medicaid in Missouri, adults in a family of three can earn no more than $3,504 this year, whereas last year the figure was $12,067. These budget "savings", in other words, are coming at high costs to individual families.
Where, in this, can anyone find the "family values" that are spouted by conservatives as their basic moral priority? We are spending more and more on war and killing by saving on health and living. Will these cuts to federal spending for health care and other important programs for lower-income Americans make it through Congress? Several commentators say "no way." See this story, Cutting Medicare Will Be Tough Sell in Election Year, in USA Today.
Instead of developing a long-term plan for treating the health needs of ordinary Americans through single-payer, universal health care that would eliminate the middle-man big pharmaceutical companies (who benefited enormously from the prescription drug plan that has baffled seniors) and insurance companies that manage to ensure those who don't need it while denying care to those who do, the budget builds in $60 billion over 5 years for enhanced health savings accounts (HSAs). As I noted in prior posts here and here, HSAs are primarily a tax-free savings device for well-to-do Americans and do almost nothing to decrease health care costs or put health care in the hands of those who need it but are excluded from our current system.
The White House FY 2007 budget proposals also demonstrate the problem of continuing to cut taxes to a rate that cannot pay for necessary government spending. American deficits continue to mushroom, especially when real predictions take the costs of Bush's shotgun diplomacy fully into account. The deficit for 2006 is predicted to widen to a very high $423 billion (3.2% of GDP--way over the 40-year historical average) and then drop in 2007 to a still-high $354 billion (2.6% of GDP). See Jackie Calmes, Bush's Deficit Math Sidesteps Some Big Outlays: War, Medicare and Tax Cuts Loom Large as Factors Undermining Forecasts, Feb. 7, 2006 Wall St. J., at A2. The White House claims that this budget sets the government on the path to reduce the budget deficit in half by 2009, a promise made in 2004. The problem, however, is that the promise was based on an exagerated projection for the 2004 deficit (4.5% of GDP), and the current projections for satisfying the promise don't take into account the administration's plan to extend the tax cuts (which should expire by 2011 under current law). Id. Extending the tax cuts would cost at least $1.8 trillion over ten years. Fixing or repealing the AMT would cost billions more--at least $844 billion over 10 years just to extend the current "patch." Id.
The budget proposals and budget deficits (real and forecast) tell only a portion of the economic story. The U.S. trade deficit reveals a disturbing imbalance that casts significantly more gloom over the budget deficit situation. The trade gap in December reached the third-highest monthly deficit ever at more than $65 billion, and the U.S. trade deficit for 2005 soared to a record total for the fourth year in a row, reaching $725.8 billion of 5.8% of GDP. See this Census Bureau release and here. "Dramatic increases" in the cost and amount of oil imports drove two-thirds of the increase in the trade deficit, according to this report from the Economic Policy Institute. The Institute's report shows, in Figure A (reproduced below), how the overvaluation of the dollar contributes to the trade gap, and, in Figure B (also reproduced below), how the U.S. has also fallen behind in "advanced technology products", importing more than we export in an area where we once excelled. (Click on images to see an enlarged version.)
The trade gap with China rose to almost $202 billion, our biggest trade gap with a single nation ever and amounting to almost a third of the overal gap in 2005. See this Financial Times story. Trade gaps with other trading partners are also rising at alarming rates.
"The U.S. trade deficit with the European Union was $122.4 billion last year; with Japan, it was $82.7 billion; with Canada, $76.5 billion; with Mexico, $50.1 billion; and with nations belonging to the Organization of Petroleum Exporting Countries, it was $92.7 billion." See this Washington Post story.
The greater the trade deficit, the more the U.S. must borrow from overseas. Economists worry that foreigners could decide to move out of U.S. securities and cause interest rates to soar, possibly leading to a global recession. Id. Even if the "hard landing" of a global recession doesn't occur, Harvard economist Jeffrey Frankel noted that future generations will suffer from a short-sighted fiscal policy.
"We know [the trade deficit] means we're borrowing against the future, and that our children will have lower standards of living than they would otherwise." Id.
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