A deficit prediction that didn’t pan out

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While working on my previous post about taxes, I came across an article I wrote just after the 2004 election about President Bush and fiscal policy. On the whole it stands up reasonably well, hinting as it does that the chances of Bush really doing something in his second term about the country’s long-run budget challenges (a.k.a. Social Security and, most of all, Medicare) were slim. But I also wrote this:

Bush has pledged to cut the deficit in half by the end of his second term, but that’s about as believable as Terrell Owens swearing off end-zone dancing. The Wall Street consensus is that the budget gap will shrink only slightly over the next four years.

The federal budget deficit in 2004 was $413 billion, or 3.6% of gross domestic product. For 2007 the Congressional Budget Office projects that it will be $172 billion, or 1.3% of GDP. So assuming that projection pans out, the deficit will been more than cut in half. I still think it’s pretty brazen for Bush to pose as a deficit fighter, given that the federal books were in the black when he took office and now they aren’t. But still, it looks like he will meet his 2004 pledge–unless the Greenspan recession ruins things for him.

I was initially thinking that Terrell Owens‘ weird season with the Cowboys might even things out for me. But he actually scored almost as many TDs in 2006 (13) as in 2004 (14).

The big question is why the deficit has dropped so much more than just about every economist outside the Bush administration predicted. The White House answer is that it’s the “strong economy,” and that’s definitely part of it (although it’s interesting that the White House website is still touting 3.5% fourth quarter GDP growth as of this morning when the number was revised yesterday to 2.2%). But I’ve got to think that the stock market, which suddenly isn’t looking so “strong,” has played a big role. And maybe the way the Alternative Minimum Tax isn’t indexed for inflation and thus sneakily raises taxes when prices rise is a factor as well. Better look into that.

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