The voices of Tax Policy Center's researchers and staff
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.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.