Not to spoil the stimulus party or anything, but the budget deficit this year could well approach $500 billion.
I know Washington pols can't wait to show voters that they can do something about the economic slowdown, but this deficit thing still matters. It especially makes a difference when we think about getting the biggest bang for the buck out of any fiscal boost to economic growth. With a 2008 deficit that big, it isn't very smart to merely throw money at the problem, especially if the benefits are so uncertain.
A $500 billion deficit, you say? It is very easy to slide down that slippery slope. The Congressional Budget Office projects a deficit for this year of $219 billion. But that estimate is, as always, based on current law. For instance, it builds in only $88 billion for the wars in Iraq and Afghanistan, when we will likely spend far more that that (we spent $171 billion in Fiscal 2007). It includes no stimulus bill, when it looks like we are about to pump out $150 billion in new spending and tax cuts.
It also assumes economic growth of 1.7% for this fiscal year, which could prove optimistic. If the economy sags, tax receipts will slide and spending for means-tested programs such as food stamps and Medicaid will grow.
These numbers are, of course, squishy. Maybe the deficit will only be $450 billion, but you get the point. And in this environment, do we really want to give an average cash payment of more than $1,000 to families making more than $200,000-a-year? It is a question worth asking because that is what the bill about to be approved by the Senate Finance Committee would do. And it isn't chump change. TPCestimates that more than $6 billion in tax cuts will go to families earning more than $200,000.
High-bracket taxpayers are more likely to save the money than consume it, so they won't do much to boost the short-term economy. That savings is good for long-run growth, of course, but writing checks to millionaires and near-millionaires does not seem like the most efficient way to encourage them to save.
Up to now, congressional Democrats have done a pretty decent job maintain pay-as-you-go budget rules. Not perfect, for sure, but not bad. It would be a shame if they throw away fiscal discipline for what is little more than a cash give-away to people who don't need it and which won't help the economy.
