Tax Revenues Reaching All Time Highs. Cut Spending

Corporate income tax collection are at an ALL TIME HIGH as a percentage of GDP (and our GDP is at an all time high too). Individual tax receipts were up 11.2% in the first seven months of FY 2006 over the same period in FY 2005, which in turn was a year when revenues surged 14.6%. Revenues are back up to nearly 18% of GDP and growing. We no longer have have a tax or revenue problem. We still have a spending problem.

State revenues climbed by 8% in 2004 and nearly 9% in 2005, according to the Census Bureau. We are taking in enough money. The problem is that the Feds spend 20% of GDP. That is too high. My own party must take the blame, but I don't hear any real talk from Dems for anything better. So let's get out the knives and cut.

Of course, my one exception to taxing is a gas tax. As gas prices fall, I advocate taxing them back up. This will help the environment, encourage conservation and alternatives. I won't hold my breath for such a tax however. Evidently I am the only man in America that likes higher gas prices. Sad.

Posted by Jack at May 10, 2006 6:16 PM
Comments
Comment #147011

I’m also a fan of higher gas prices, but thats the only place we agree.

This country will ween itself off of oil if it has no other choice.

Posted by: David S at May 10, 2006 6:39 PM
Comment #147016

Jack:

I noticed that the budget deficit is down 22% this year over last.

More bad news.

Craig

Posted by: Craig Holmes at May 10, 2006 6:50 PM
Comment #147018

What a bunch of GOP B.S. We have a tax problem alright, it is called deficits. After extending the debt limit just in March, I now hear another debt limit raise is coming before Congress in the next week or so for another 60+ billion. Is there no end to this already 3 Trillion dollar growth in our national debt in our GOP future. Guess not.

That is why GOP incumbents have to go in November.

Now I grant you, spending has to be cut. But with some sense of priority. Let’s begin with corporate subsidies since corporations profits are setting new records. Then let’s begin redeploying and downsizing Iraqi operations. But, GOP cuts in education? Now that is just plain penny wise and pound foolish. Story just released this day by USA Today indicates SAT Scores are dropping significantly at some colleges.

But raising our debt limit 70 Billion dollars so the wealthiest 1% can receive a new Lexus in tax cuts while my family with a modest middle class income will receive less than $400 is not worth it. Please keep my families $400 and the rich folks new Lexus and reduce our deficits run amok. You all are destroying my daughter’s future earnings travelling this tax cut/spend more road to the $11 Trillion national debt level by 2009.

Posted by: David R. Remer at May 10, 2006 6:56 PM
Comment #147019

I can’t believe we hear democrats, and some Republicans, arguing that we have to cancel the tax cuts because of the expenses of Katrina and Iraq. We can’t pay these expenses with tax rates. We need revenue. Duh!
Three presidents in my adult lifetime cut tax rates. (Kennedy, Reagon and George W). Each time revenue went up.
Tax cuts are not bad….The democrats just can’t sell them.

Posted by: Dave at May 10, 2006 7:00 PM
Comment #147020

Craig, GDP is going to drop significantly into the 2% to 3% range the latter half of this year. So don’t count your annual revenues before they are hatched. 1st quarter GDP was in the 5% range. Like all quarterly numbers, they fluctuate. One quarter does not a boom economy make. An annual average of about 3 to 3.5% annual GDP growth should be our target, and it appears we will hit that target this year.

The tax cuts 2 years ago now affecting GDP growth rate did boost economic growth as predicted. But, why can’t I find one iota of fiscal discipline in the GOP Congress when things are so rosy as you depict?

Posted by: David R. Remer at May 10, 2006 7:08 PM
Comment #147022

Of course tax cuts, per se, are not bad. It depends on what you want to do. Mr. Keynes suggested tax cuts and tax increases depending upon the condition of the economy.

Running trillion dollar deficits and then advocating more tax cuts and reduced expenditures is nonsense. We need a tax increase or at the very least restoration of the tax cuts that were given to the top 10%.

As to decreased spending, how about the defense department? No one ever suggests we cut spending there. Heaven forbid. What ever happened to the bonus we were supposed to get as a result of “winning” the Cold War? We have great societal needs: infrastructure, health care, education, environment—all are areas badly in need of increased expenditure.

I continue to be amused by the GOP play to cut taxes. What did Mr. Norquist say? Something like starve the beast? Well, you have succeeded now who will pick up the pieces?

Peace, cml

Posted by: cml at May 10, 2006 7:13 PM
Comment #147028

David:

Craig, GDP is going to drop significantly into the 2% to 3% range the latter half of this year. So don’t count your annual revenues before they are hatched. 1st quarter GDP was in the 5% range. Like all quarterly numbers, they fluctuate. One quarter does not a boom economy make. An annual average of about 3 to 3.5% annual GDP growth should be our target, and it appears we will hit that target this year.

The tax cuts 2 years ago now affecting GDP growth rate did boost economic growth as predicted. But, why can’t I find one iota of fiscal discipline in the GOP Congress when things are so rosy as you depict?


I stand by my numbers. It is normal for the second half of the year to be slower than the first half. I quoted a fact, that the budget deficit year to date is 22% lower than last year. That is good news.

I have yet to depict the economy as rosy. The economy is “fine” meaning that it is at historical norms. “Rosy” would be above or better than historical norms.

I agree completely with your accessment of the lack of fiscal discipline in Congress on the spending side. As strange as it may seem, that is one reason to have a deficit. (Getting ready to duck). I remember the congress from 1998-2000. They basically spent the surplus. If we do achieve a surplus, Congress will spend it, on the other hand, with a deficit, people raise hell, which restrains spending.

Without the Bush tax cuts, we would be about in the same place (with a defict) only with higher spending. In theory, I support borrow and spend (republicans)over tax and spend (democrats) in the hope that it will produce lower spending. This theory has been severely tested with this Republican congress.

It is very possible that more improvement in the budget picture may come, if the fed is forced to lower interest rates if the economy slows down. This is exactly what happened ten years ago. You know, if we get that democratic house, and return to gridlock we just might balance the buget. (Of course this would happen in the middle of impeachment hearings, so no one could take full credit for it).

Craig

Posted by: Craig Holmes at May 10, 2006 7:28 PM
Comment #147043

To my comment posting predecessors,

I wouldn’t go so far as to attempt to predict GDP growth in the coming quarters, as there are too many unknowns at this time. Recently, GDP growth has been largely affected, if not subdued, by the confluence of fed rate hikes and rising oil prices. However, in spite of those impediments, the economy has been growing in enviable fashion (just ask the French!). Moreover, if Bernanke is serious about halting rate hikes in the near future, and if oil prices stabilize, GDP growth in the US could settle at 4% per annum for the next couple of years.

As David points out, though, there is a far more pressing issue that the US economy faces at this time. The growing defecit is a major problem, not too mention public debt in general, which stands at around $8 trillion. In case you’re wondering, China has allowed us to spend ourselves into oblivion without any immediate consequences. They have gladly purchased about $1 trillion of our debt and are charging us a very low interest rate. The current administration (which I voted for), with the help of Congress, has exploited that low interest rate to the point where America has been spent into a hole that puts the New Deal to shame. It’s going to take a lot more than increased tax revenue to save us now!

Finally, I would caution against complacency toward our growing debt. While America does benefit from our relations with China, those relations come at a price. China is not our friend, though we are enriching the country to no end. You may want to research China’s military investments, both on and off the books, the countries with which they have been forming alliances, and the dangers posed to our economy by their refusal to fairly value their currency.

I am new to this site and I have enjoyed it thus far. Let me apologize in advance if my writing has been unintelligible, as I’ve had a few beers!
Cheers!

Posted by: Dr Politico at May 10, 2006 8:39 PM
Comment #147044

Craig, damn fine analysis. I agree. I too look forward to some gridlock with a change in party control of the House in January to help check and balance each party’s excesses.

I wasn’t knocking your numbers. But, year over year comparisons don’t mean much when you have two wars going paid for by emergency spending resolutions. Revenues don’t account for the whole 22 percent difference, emergency spending appropriations also figure into the deficits equation, and their timing in each respective year.

Though, revenues surely play a part as the economy was in fact running hotter last year than the year before. Revenues reflect income gains in the previous year. And the economy was weaker in 2004 than 2005, no question.

Posted by: David R. Remer at May 10, 2006 8:40 PM
Comment #147046

Cml

Military cuts were one of the big ways we balanced the budget in the late 1990s. It was the peace dividend at the end of the Cold War. Unfortunately, we had to pay it back after 9/11 showed us the world was not as safe as we thought.

Craig and David

3% growth would be great. That would be about twice that of the Europeans and above our long term averages. We have been a little spoild by the robust economy since 2003 that we forget what a good growth rate is. That would be enough. The recent fantastic growth cannot continue, I agree, but the 3% will be just fine.

What I was showing by this post is that our revenues are catching up with what we took in when we had a surplus and are beginning to exceed it. If we could just get our Federal government back to what it was in 2000, we would be fine.

I am not saying we don’t have a problem here, but to correctly address a problem, we need to correctly diagnose it. The correct diagnosis the problem is to understand that it is more urgent to address the spending side NOT the revenue side of the equation. The government can spend as much money as we let it have. Can you think of any reason why we want a BIGGER Federal government than we had during the Clinton time? Cut it to that size and we will be back in surplus very soon.

All the Dems liked the Clnton times, right?

Posted by: Jack at May 10, 2006 8:45 PM
Comment #147053

Jack, nothing about 9/11 predicated our war in Iraq. And hands down, the Iraq war is the biggest part of the increased spending and deficits today.

Also, just cutting spending willy nilly will create as many problems as it solves. You are aware of the extreme complexity of our economy and its tenatacled entanglement with our politics and cultural values. Spending cuts that make Americans suffer, I don’t mean doing without next year’s Hummer, but real suffering like a spike in bankruptcies or home foreclosures, will have ripple effects in politics and the culture that could seriously affect economic decisions and balance.

That is why I stress priorites in spending cuts. Wrong ones at the wrong time, and kablewy, you can create a political backlash that causes deficits to skyrocket again.

Posted by: David R. Remer at May 10, 2006 9:01 PM
Comment #147055

Jack and David:

Well, David first. I am not as convinced as you that the dems take the house. www.intrade.com has the percentage chance at 48%. As we all know 6 months is an eternity in politics. (I know this is out of thread). I wish the Dems would fire Pelosi. I think we will see her and Kennedy and Howard Dean nonstop in the stretch over the summer.

This is about economics, but with a different democratic party, I would probably be voting democrat this year. The answer is simple. I don’t think Bush lied. I think they failed to do due diligence on the most important matter ever to face a president. (going to war). I think the “correct ” solution is the same one that Clinton faced. Have the house impeach him, and the Senate fall sort of 60 votes.

Now on to economics. That is good economics, because the one thing David and I agree on is that the best of all worlds is gridlock.

Craig

Posted by: Craig Holmes at May 10, 2006 9:04 PM
Comment #147056

David

Take the size of the Feds back to 2000. Things were not that bad back then.

Posted by: Jack at May 10, 2006 9:05 PM
Comment #147064

Craig, early on you seemed to insinuate that the federal budget deficit decreased by 22% this past year. I would like to know what makes you think this is the case (if indeed you do think this). All economic data I’ve seen points to our deficit growing by the 5th highest amount in our history this past year. Regretably, I didn’t concern myself with doing a GDP comparison, but I’m sure that a +300 billion dollar increase in our deficit is not a good thing in any event.

Jack, your optimism is typical. You see things going “well” now, and assume it has no negative impact on our future. I would like to make our current situation analagous to someone who borrows money to live an affluent life-style and eventually files bankruptcy because he/she is unable to sustain the facade of wealth forever. I’m not saying there aren’t opportunities for making money, but if we take the utilitarian view, this is a bad thing for our society.

Posted by: Zeek at May 10, 2006 9:23 PM
Comment #147068

Zeek

It is not optimism. We are spending too much. Revenues are up to what they were. If we cut back to the situation a couple years ago, we are fine. So I suggest we cut expenses and pay back some of that money.

Posted by: Jack at May 10, 2006 9:27 PM
Comment #147069

Jack, I’m down with the gas tax. It is obvious, at this time, that oil profits are not going to into large investments on alternative fuels. They are still spending most of it on exploration. As usual it will have to be a handful of small businesses and govt help that get the ethanol (E85) up and running.

The way I see it we use the tax money to invest in the production plants of ethanol as well as help the gas stations change over a pump or two. Also use some of the money to help keep the costs down on the conversion kits that we will need for our engines to run on the E85. I know this is a short term solution but I’m just thinking out of the box here. Any thoughts?

I guess this is off topic but you mentioned it in your initial statement.

Posted by: Matthew at May 10, 2006 9:33 PM
Comment #147072

Matthew

Ethanol is not the way to go. Methanol or ethnanol for celulose is the most exciting new thing. We may be able to digest this with the help of biotech enzimes.

We don’t need the Feds to do this. We just need to be left alone by the regulators.

Posted by: Jack at May 10, 2006 9:38 PM
Comment #147074

Jack,
With respect, I wasn’t referring to the newest thing I was talking about the quickest alternative. Something to reduce oil consumption within a couple years.

Okay, I’ll bite. What do you propose we do with the gas tax that you want to impose to keep the price up?

Posted by: Matthew at May 10, 2006 9:53 PM
Comment #147077

Matthew

I don’t believe in earnmarkng revenues. I would just use the tax to reduce the deficit. I am mostly interested in keeping the price high. Only with prices above $50/barrel will it make sense to conserve and develop alternatives. The problem is that below $50 oil wins. It IS the cheapest alternative at that price.

I wasn’t trying to give you a hard time re ethanol. The problem with ethanol is that it takes almost as much energy to make as we get and it has to be made from food crops such as corn. Growing corn takes lots of space and corn is demanding of fertilizers, pesticides and fuels to harvest.

Celluose from stalks, wood chips, switchgrass etc is much more benign. Most of these things are already waste products or can be grown with minimal environmental distress.

I should probably write a whole post on this subject, since there is a lot to say.

Posted by: Jack at May 10, 2006 10:03 PM
Comment #147084

Zeek:

Craig, early on you seemed to insinuate that the federal budget deficit decreased by 22% this past year. I would like to know what makes you think this is the case (if indeed you do think this). All economic data I’ve seen points to our deficit growing by the 5th highest amount in our history this past year. Regretably, I didn’t concern myself with doing a GDP comparison, but I’m sure that a +300 billion dollar increase in our deficit is not a good thing in any event.

The figure I am using is fiscal year to date. This far into this years budget year, the federal deficit is down some $60 Billion or 22% over last year. This is very different from saying that for the whole year the budget deficit is down 22% which was David’s point to me earlier.

It is still good news!!

I noticed you called Jack an optimist. I get called that alot here. It is sorta like my favorite diet. My favorite diet is to stand next so someone fatter than I am. I think the economy is in the “normal” range, and will continue to move ahead for some time like this.

On the budget deficit, I think if credit as a commodity just like oil, or coal etc. It is soooooo cheap right now. Let me give you a for instance. Let’s say you have money in the bank at 4%, and can borrow at 6% and you are a company and want to buy another company. Lets say you have cash and credit and can do it either way? Well if the company has AVERAGE earnings you borrow. Why? Because the earnings yield on the S&P 500 is over 7%. You can keep the cash in your pocket and buy the company and make 1% by financiing which adds to your earnings. Not only that but history shows that the earnings (currently at 7%) increases with time. Also, when you purchase a company typically the costs in the new company go down because you lay off the workers that overlap. (This is called arbitrage).

Currently corporations are sitting on mountains of cash (I think it’s about 1.5 Trillion). Calculations are that this will continue until the stock market goes up about 25% from here, which puts the S&P at 1600, or a new high.

The same is true on the federal level. Interest payments are actually declining both in real terms and as a percentage of GDP because of refinancing bonds at this low rate. Interest payments on debt actually peaked in the late 1990’s. (I think around 1998).

Let me go a bit further. If the nominal rate of growth of the economy (real growth plus inflation) is greater than the yield of the bonds, then it makes sense to me to borrow. The nominal rate of growth of the economy traditionally has been about 6%. Lets say you borrow 30 year money at 5% instead of taxing now for the project. At 1% a year without compounding that is a 30% discount. It is roughly 30% cheaper for the economy to “pay” for the project in the future than now.

Basically in times of increasing interest rates, (ie the late sixties through early 1980’s) it is wiser to be careful with borrowing because you are refinancing low interest debt with higher. In times of decreasing interest rates, like we have had since 1982 it is not a bad idea to have deficit spending.

Actually, taking that back a little, it is always wise to be careful with borrowing. And I am concerned on the spending side of congress. Actually I’m damn mad, because it’s my party doing the spending. They look like drunken sailors to me.

However, used in a measured pace, deficit spending is a great tool. My own comfort level is 3% of GDP on a long term basis, higher during recession and war, and lower in times of prosperity for a long term average of about 3%. Right now with a 13 Billion dollar economy, and the fact that we are in probably the second half of the growth cycle, the deficits need to be under $390 Billion. (13 Trillion * 3%). That is the number than keeps the public held debt at the same level as a percentage of GDP.

As for Bush’s performance, the jury remains out. I would like to see the debt as a percentage of GDP fall further. (It has only just bagan to fall).

Craig

Posted by: Craig Holmes at May 10, 2006 10:20 PM
Comment #147099

I need but three words to explain your hysterical, bogus news, Jack: Republican deficit spending.

If the Chimpster wasn’t piling debt on debt, GDP wouldn’t be at an “all-time” high (by the way, since when is “all-time” equivalent to “since 1986”?) and if GDP wasn’t at an “all-time” high, corporate tax receipts wouldn’t be at an “all-time” high.

Next.

Posted by: wanna_be_jack at May 10, 2006 10:45 PM
Comment #147100

Jack:

The government can spend as much money as we let it have.

No, since the government can print money, the government can spend MORE money than we let it have. Are you paying any attention? And they do, especially since Republicans have had control of everything. But you’re perfectly fine with that, aren’t you?

Posted by: wanna_be_jack at May 10, 2006 10:48 PM
Comment #147105

Jack,

Take the size of the Feds back to 2000. Things were not that bad back then.

The reason on why the size of the Feds was smaller back then was because there was no “War on Terror” or invasion of a foriegn Middle Eastern country. However, due to Mr. Bush’s policies, the U.S. requires a large bueracratic gov’t to carry out his wars, invasions, and wire-tappings.
So as much as most of us would want a small efficient gov’t, it’s just not possible under the current administration.

Also, the idea on raising taxes on oil to motivate different fuel spending is absurd. The oil companies in particular will not stand for this, seeing on how heavily taxed oil is already. The oil industry is too profitable for investors and CEOs that they will not take a risk in innovating new fuel resources.
The only thing the higher gas prices will do is that the rich can drive their civilian Hummers, while the poor will have to bike to work.

Posted by: greenstuff at May 10, 2006 10:56 PM
Comment #147106

Craig, you are of course aware that in a single month, such as this past February, the budget deficit can increase by over 100 billion dollars. Granted, off the top of my head I can only think of the 119 billion dollar deficit accrued in the month of February, but it illustrates the fact that “this far into the year” means absolutely nothing.

And credit is not a commodity, it is a debt, and unless there is a skillful use of that debt, it can very easily become a liability rather than an asset. Your figures, while impressive, do not address the fact that an aging baby boomer generation will necessarily mean that our government spending will continue to increase in the future yet the revenue shall decrease. This will of course be due to the increased cost of supporting retirees and the loss of their consumer spending.

Thus, while our problem is perfectly sustainable in the here and now (which I already acknowledged) it is a ticking time bomb that will blow up sooner or later.

Posted by: Zeek at May 10, 2006 10:57 PM
Comment #147107

Craig:

The figure I am using is fiscal year to date.

Yeah, thanks to a little thing called April 15, the day on which huge numbers of tax payers file a little thing called a tax return, and attach a little piece of paper called a check. That’s why “the deficit is down 22%” compared to last year - it’s always down something like that in the first part of the year. But on a year over year basis, we’re in worse shape that this time last year.

Nice try at lying with statistics though, Craig.

Posted by: wanna_be_jack at May 10, 2006 11:01 PM
Comment #147113


wanna_be_jack

Yeah, thanks to a little thing called April 15, the day on which huge numbers of tax payers file a little thing called a tax return, and attach a little piece of paper called a check. That’s why “the deficit is down 22%” compared to last year - it’s always down something like that in the first part of the year. But on a year over year basis, we’re in worse shape that this time last year.

Nice try at lying with statistics though, Craig.

The dates are October 1st through April 30th of both years. 2005 had an April 15th in it as well. Every fiscal year has an April 15th in it.

Craig

Posted by: Craig Holmes at May 10, 2006 11:16 PM
Comment #147116

Craig,

show your numbers and where you got them. There is no possible way the deficit is down 22% since last year except by some weird satatistical anomaly. Or you’re lying.

Show the raw numbers and your source.

Posted by: wanna_be_jack at May 10, 2006 11:23 PM
Comment #147118

Zeek:

Craig, you are of course aware that in a single month, such as this past February, the budget deficit can increase by over 100 billion dollars. Granted, off the top of my head I can only think of the 119 billion dollar deficit accrued in the month of February, but it illustrates the fact that “this far into the year” means absolutely nothing.

If this were October I would agree with you. However in the seventh month of the fiscal year I think $60 Billion is a something.

And credit is not a commodity, it is a debt, and unless there is a skillful use of that debt, it can very easily become a liability rather than an asset.

I agree with you in part. I use commodities as an illustration. When interest rates are low, like now, the use is bound to increase, in much the same way that if fuel prices where to drop in half, consumption would increase.


Your figures, while impressive, do not address the fact that an aging baby boomer generation will necessarily mean that our government spending will continue to increase in the future yet the revenue shall decrease. This will of course be due to the increased cost of supporting retirees and the loss of their consumer spending.

There are quality economist all over the board on this one. The one I think has down the best research is Jeremy Siegel’s book Future for investors.

Future For Investors Named by, Business Week, Barron’s and Financial Times, as one of the Best Business Books Published In 2005!

Mr. Siegel’s basic thesis is that stock asset prices should be sufficient to carry the baby boomers because on a world wide scale there is no “age wave”. The future is to the young, and the young are in India, China etc. My generation should be able to sell our assets for a good price, it will just be to foreigners.

I was speaking with a leading economist (met him at a luncheon) that I read each week. He was saying much the same thing. That the Age wave is too simplistic, and that the compination of productivity increases and globalization should moderate any effects of the agewave. So I think we are ok.

Thus, while our problem is perfectly sustainable in the here and now (which I already acknowledged) it is a ticking time bomb that will blow up sooner or later.

This seems highly unlikely to me as long as we are able to maintain some discipline around that 3% mark long term. I agree completely with Jack that we have to get a lid on spending. Taxes seem fine to me.

Craig

Posted by: Craig Holmes at May 10, 2006 11:31 PM
Comment #147120

wanna_be_jack:

Here is the URL:

http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BDD7AD634-27BC-4C7C-B161-41CAC542E85D%7D&siteid=google&dist=

Just because you called me a liar, here is the whole article:


ECONOMIC REPORT
April surplus rises to $118.9 billion
E-mail | Print | RSS Feed | Disable live quotes
By Rex Nutting, MarketWatch
Last Update: 4:10 PM ET May 10, 2006

WASHINGTON (MarketWatch) — Strong growth in tax receipts pushed the federal government’s surplus to $118.9 billion in April, the Treasury Department said Wednesday.
The surplus was more than double the $57.7 billion surplus recorded in April 2005. It was slightly less than the $120 billion forecast by the Congressional Budget Office last week.
For the fiscal year so far, the deficit is $184.1 billion, down 22% from the $236.9 billion at this time last year.
CBO said the deficit for the fiscal year, which ends in September, would likely be significantly below $350 billion and perhaps as low as $300 billion. The White House had forecast a $423 billion deficit in January.
The CBO figures prompted private budget-watchers to lower their deficit forecast as well. Goldman Sachs economist Ed McKelvey lowered his estimate of the fiscal 2006 deficit to $300 billion, or 2.3% of gross domestic product, from a previous forecast of $375 billion, or 2.6% of GDP. But McKelvey said he was reluctant to cut further, despite the fact that unexpected strength in revenues could be used to argue for an even larger cut in the deficit estimate.
McKelvey, in a research note published late Tuesday, said he was concerned that pending appropriations bills could boost outlays beyond his previous estimates. Meanwhile, the big surprises in personal tax receipts are concentrated in non-withheld payments, which are made up of estimated taxes and final settlements.
Estimated taxes are paid mostly by high-income individuals, whose pay isn’t largely dependent on wages and salaries. The boost in final settlements largely reflect one-time events, such as bigger-than-expected year-end bonuses, capital gains realizations and other measures, McKelvey said.
Meanwhile, prospects for further upside surprises in corporate tax receipts are endangered by a “constrained” outlook for further strong growth in profits.
“If real GDP growth slows, as we expect it will, then profits are apt to bear the brunt of this slowing,” he wrote. And if the economy doesn’t slow, further tightening in the labor market would pressure profit margins and lead to more tightening by the Fed.
CBO said the timing of payments and receipts accounted for about $30 billion of the difference between this April and April of last year.
In April, receipts were up 13.5% year-over-year to $315.1 billion. Outlays fell 10.7% to $196.3 billion.
So far this fiscal year, individual income tax receipts are up 9.9% to $601.5 billion. Corporate income tax payments are up 29.9% to $174.3 billion. Total receipts are up 11.2% to $1.35 trillion.
So far in the year, outlays are up 5.7% to $1.54 trillion.
The figures, meanwhile, feed into a debate over President Bush’s fiscal policies. The administration and congressional Republicans say surging revenues are a reflection of the strong economic growth fostered by Bush’s first-term tax cuts.
Congress is expected this week to approve Republican-backed legislation extending around $70 billion worth of tax cuts, including lower rates on capital gains and corporate dividends. See full story.
Democrats charge that the Bush tax cuts have contributed to chronic deficits under Bush’s watch, and that extending lower rates on capital gains and dividends will worsen the budget gap in coming years. End of Story
Rex Nutting is Washington bureau chief of MarketWatch.

This same thought also is contained in the Wall Street Journal if you wish to look it up.

Craig

Posted by: Craig Holmes at May 10, 2006 11:40 PM
Comment #147122
My own party must take the blame,

Of course. They’re spineless.

but I don’t hear any real talk from Dems for anything better.

There’s where you’re wrong. The new round of tax cuts for the rich will cost $70,000,000,000 (in borrowed money from China, of course). You know why? Because that’s the maximum amout of deficit spending the Republican’s fast-track rule allows them to pass without any debate or procedural roadblocks at all.

You can bet Democrats would block this $70,000,000,000 Republican borrowing spree if we could.

For the last couple years, Democrats proposed getting rid of the fast-track rule and making ALL deficit spending open to debate. As well, Democrats introduced legislation to reinstate the pay-as-you-go rule requiring Congress to make offsetting spending cuts to cover the expense of any bill they pass. And we propose mandatory across-the-board spending cuts to offset all deficit spending.

Democrats are serious about fiscal responsibility. Republicans are spineless.

Posted by: American Pundit at May 10, 2006 11:52 PM
Comment #147125

Watchblog editor:

I don’t think it is in the interest of this forum to use personal attacks as it spoils the atmosphere. My preference would be for you to remove the posts with “liar” used in reference to me, as well as my defense.

Craig

Posted by: Craig Holmes at May 11, 2006 12:03 AM
Comment #147133

Craig Holmes:

I do not believe anyone called you a liar. It is my opinion that they were simply presenting a possible explanation to the figures you presented. I do not believe they wanted to malign your character.

Posted by: Aldous at May 11, 2006 12:55 AM
Comment #147134

… then again, I could be wrong…

Posted by: Aldous at May 11, 2006 12:57 AM
Comment #147151

Let us not forget ladies and gentlemen, that our population is ALSO at record highs about to turn, if it hasn’t already, 300 Million people. As a population grows so does the economic activitity of all those additional people consuming and producing.

In addition, a bounce in the economy was in the cards whether or not tax cuts were ever made. Fact is late 1999 and 2000 saw a world wide moderate recession kick in, and today we are witnessing a world wide economic growth.

So before giving to much credit to Republicans for tax cutting us into the highest deficits and national debt we have ever witnessed -(on track for 11 Trillion by 2009), take into account these other factors and then give Republicans the appropriate praise for the gains in both economic activity and national debt their policy deserves.

Posted by: David R. Remer at May 11, 2006 8:18 AM
Comment #147153

wanna_be_jack, Craig is correct above in calling for enforcement of our Critique the Message, Not the Messenger policy. It can be legitimate under our policy to question the veracity of a person’s comments, but, to claim that a person is lying steps outside our policy constraints.

Please comply with our policy in order to protect your comment privileges here at WatchBlog.

Posted by: WatchBlog Managing Editor at May 11, 2006 8:25 AM
Comment #147159

David (and AP)

You are right that we live in a global economy. We obviously cannot blame Bush for the global downturn, which began to affect us in 2000 (the year before Bush took office) and is benefiting from a global upturn, which started to help the U.S. in 2003.

But if we get beyond the blame and praise game, we are still left with our dilemma. We have seen that revenue growth has spiked. We now take in enough money to fund the government (as a % of GDP) if our government was about the size it was for the average of our lifetimes (as % of GDP) or about as big as it was in 2000. The revenue side of the equation is fine. We have a spending problem. Before we do anything else, we need to recognize the source of our current problems and it is spending.

The question is, do we want to EXPAND the Federal government either through borrowing or taxes.

Wana

The government can inflate the currency. So that makes it even more dangerous, right.

I don’t know what your 1986 refers to. We have the biggest GDP ever in the history of the United States and the world. In 1986 it was probably only half as big. Corporate tax revenues are at a high as a % of GDP, therefore they are also the highest in the history of the United States.

Posted by: Jack at May 11, 2006 8:47 AM
Comment #147174

Jack said: “The revenue side of the equation is fine. We have a spending problem.”

Sen. Chuck Grassley (R) on C-Span’s Washington Journal this morning stated emphatically and exclusively that the deficits are the result of the Iraq war and the war on Terrorism. Aside from that fact that his statement is patently false since it did not include Katrina and Rita and Homeland Defense, and a host of other spending programs like the 1 Trillion dollar Medicare Rx boondoggle that the President and Republicans told us would only cost about 400 Billion, but a bigger issue was entirely avoided.

That issue is, paying for what you spend rather than passing the cost on to future generations for generations to come.

Jack, Democrats are on the right side of this issue and Republicans are on the wrong side. Democrats promote pay as you go, which is what allowed Clinton to create a surplus. Republicans continue to insist there are no spending limits because the federal governments power to tax not only present citizens, but, decades of future citizens is an unlimited charge card for them.

That attitude accounts for a great deal of no-bid contracts. If penny pinching were important to Republicans, competitively bid contracts would be the norm, not the exception as they have rapidly become in FEMA, Homeland Defense and Military spending.

The way to pay for your increased spending is to increase your revenues. So, NO, the revenue side is not “fine”.

Posted by: David R. Remer at May 11, 2006 9:33 AM
Comment #147175

P.S., that should have read: The way to pay for your increased spending is to increase your revenues. So, NO, the revenue side is not “fine” as long as we are still chalking up 1/3 of a trillion dollars increased national debt as we will this year.

Posted by: David R. Remer at May 11, 2006 9:37 AM
Comment #147182

Craig, first off, it’s 22% smaller than the deficit last year according to what you posted. That doesn’t mean we don’t have a deficit for this fiscal year.

“This seems highly unlikely to me as long as we are able to maintain some discipline around that 3% mark long term. I agree completely with Jack that we have to get a lid on spending. Taxes seem fine to me.”

Perhaps you did not understand my contention. As people retire, they will cease becoming major consumers. As such, the economy will necessarily slow down. This being the case, just where do you plan on getting your taxes from without either burdening retirees (which is illogical since we’re paying for their retirement), or burdening the ever shrinking work-force? If we do tax the work-force to keep our deficit at a “tolerable” level, it will only mean a decrease in our GDP. This means that the problem will not have been solved.

I stand by my analogy of the current situation being a ticking time-bomb.

Posted by: Zeek at May 11, 2006 9:56 AM
Comment #147197

NATIONAL DEBT now over $28,000 per capita

We have people plunged into poverty, more and more without medical insurance, schools going in the tank….we’re spending this deficit on the wrong stuff…we don’t need more bombs, we don’t need more military airplanes that don’t function, we don’t need to send our children to invade sovereign nations, we don’t need to create a database of every phone call in the U.S….we need to spend our money on the U.S. and its citizens…we’re sicker than England, we don’t have universal medical care like the majority of other industrialized nations, we build more and more roads as gas prices sky.

Posted by: Lynne at May 11, 2006 10:39 AM
Comment #147224

Jack

I usually do pretty fair at Jr. High School math but this has me puzzled.

Individual tax receipts were up 11.2% in the first seven months of FY 2006. That means they are ALREADY higher than all of FY 2005

I get the impression that the first sentence meant the Individual tax receipts were up 11.2% over the same period the year before. If that is true the second statement can not be true. Receipts would have to be up much more than 11.2% for 7 months to be higher than total receipts for 12 months unless receipts were near zero during the last 5 months of FY 2005 which seems unlikely.

If the second statement is true, what are the first seven months receipts of this year being compared to?

I may be totally misunderstanding your meaning. If I am please help me to clear the fog.

Revenues are back up to 18% of GDP and growing.

The most recent figures I can find are at:
http://www.whitehouse.gov/omb/budget/fy2006/sheets/hist01z3.xls

The OMB estimates the receipts for 2006 to be 16.9% of GDP and may reach 17.7% by 2010. Are you speaking of a different number? If so could you provide more details?

My own party must take the blame, but I don’t hear any real talk from Dems for anything better.

Here is an exercise I would like for you to do. Go back to the time Truman was elected in 1948, by then the world had settled somewhat from two World Wars and the Great Depression. Calculate the National Debt for each year (fiscal or calendar), adjust for inflation and attribute any changes to either Republican or Democrat. According to my calculations a little more than 90% of the increase in the National Debt since 1949 was added during Republican administrations, (actually each of the last 3 Republican Presidents has added more to the National Debt than all the Democrat Presidents combined). It would be interesting to see someone else do the same so I could compare methods and results.

One last favor. Would you mind including the web addresses of the government agencies that publish the raw data you use in your calculations?

Posted by: Arm Hayseed at May 11, 2006 11:19 AM
Comment #147227

EDIT:

My own party must take the blame, but I don’t hear any real talk from Dems for anything better.

Was a quote from your article, I missed making it bold.

My own party must take the blame, but I don’t hear any real talk from Dems for anything better.

Posted by: Arm Hayseed at May 11, 2006 11:23 AM
Comment #147236

Zeek:

Craig, first off, it’s 22% smaller than the deficit last year according to what you posted. That doesn’t mean we don’t have a deficit for this fiscal year.

Yes that is true. But small deficits are an important tool in economics. Like any tool they are distructive if not used wisely.

As people retire, they will cease becoming major consumers. As such, the economy will necessarily slow down. This being the case, just where do you plan on getting your taxes from without either burdening retirees (which is illogical since we’re paying for their retirement), or burdening the ever shrinking work-force? If we do tax the work-force to keep our deficit at a “tolerable” level, it will only mean a decrease in our GDP. This means that the problem will not have been solved.

I know what you mean even if you are not saying what you mean. For instance, ask cruise ships, casino’s and health care providers if seniors stop consuming.

I think the important part of your argument is that they stop producing income from work. They stop paying payroll taxes (SS) and start withdrawing from assets.

And I think you will admit that this is a balance thing. There still are young people, just not the same mixture. So the question is, where do we get the money? It is fine to retire if the country has the asset base to live off of, but who is going to buy the assets when the baby boomers need the cash?

As for small examples to look for, Florida seems to be doing well as a state with a mixture scewed towards the elderly. How do they do it?

The key is that as long as asset prices remain high, they can be sold to provide income. The income will come from foreigners buying our stocks are real estate.

Example, when I am 70 in twenty years, the equities in my IRA should be able to be sold at a reasonable level as today. However, they will be most likely sold to a foreigner. When I pull the money out of my IRA, I will be forced to pay taxes.

In addition, (If the basic question is how is the age wave going to be a speed bump instead of a wall), we have a great opportunity in immigration if my party (Republicans) can get their act together. It is absolutely amazing how stupid we are right now on immigration. The world has plenty of young people, they are just in other parts of the country. We are the country that is the best at immigration. Now is the time!! (Solution number two).

Solution number three. Elect David and Jack to congress and put them in charge of the buget. We have to cut spending correctly. (not by taking it out of education and sliting our own throats).

Solution number four. We need to take another look at national health coverage. Our system simply costs too much for the health it is delivering. It’s not working.

Solution number five. Extend the number of years people work by a few.

conclusion:

The age wave has many solutions. I think (predict) it will be more like Y2K. Usually when we (as in society) has a problem we can see and measure in advance (like Y2K) we do great. Where we do not do great is when we are blindsided, (9/11). Now that 9/11 is not a shock anymore, I think the next president (from either party) will do far better the Bush, because they will have lived through the experience and have learned the painful lessons the Bush has taught all of us.

Craig


Posted by: Craig Holmes at May 11, 2006 11:52 AM
Comment #147247
I noticed that the budget deficit is down 22% this year over last.

The budget deficit (which does not include any of the Iraq “war” spending) was less than projected, but the deficit is still growing larger…

Posted by: Lynne at May 11, 2006 12:14 PM
Comment #147249
The OMB estimates the receipts for 2006 to be 16.9% of GDP and may reach 17.7% by 2010. Are you speaking of a different number? If so could you provide more details?

OMB figures are generally more rosy that real…OMB uses cost basis accounting, NOT accrual basis accounting.

Posted by: Lynne at May 11, 2006 12:16 PM
Comment #147269

Arm

I misread the table and you are right. I have changed that part of the post. These are the numbers, comparing the FIRST 7 MONTHS of each


Individual income: 547 billion v 603 billion
Corporate: 134 billion v 174 billion

That one is just my fault, not any source.

The source of the 18% figure is WSJ yesterday.

Also my mistake, I should have said “nearly”. The article discusses problems with OMB estimates.


Posted by: Jack at May 11, 2006 1:23 PM
Comment #147285

“That is why GOP incumbents have to go in November. Now I grant you, spending has to be cut.”

And who (pray tell) are you going to replace the GOP with? The Jacka$$es?! They sure know how to $pend, that’$ for $ure. And, what is the Democratic congress going to do once their in charge? Are they going to defend America from terrorism? Deal with Iran? Secure the border? Cut taxes? Increase economic growth?


Hell no! They’re going to “defend” America by going after the Prez with “hearings” and “impeachment” talks; tax (the sh*t out of) rich; increase spending and (oh yeah) go after “Big Oil” for their “Big” Profits.

So, careful what you ask for, b/c you (we) just might get it…

Posted by: rahdigly at May 11, 2006 2:13 PM
Comment #147303

rahdigly, the first step to restoring individual liberty and checks and balances in our government according to the Constitution is to remove Bush and Cheney. So, yes, I pray Democrats do take back the House in November for no other reason than some checks and balances will be restored. In addition, Democrats want Pay as You Go spending. Can’t pay for it, don’t spend it. That is a fiscal policy that is heads above the Republicans bankrutping my daughter’s future earnings with twice the national debt I ever had to pay taxes for.

I am no Democrat and never will be in the rest of my lifetime because their party is as prone to corruption and ethical malfeasance as the GOP. But, when it comes to fiscal policy and the prosperity of my daughters future, the Democratic Party is the new conservative party by comparison to what Republicans have done.

Posted by: David R. Remer at May 11, 2006 3:32 PM
Comment #147305

Zeek, our work force is not declining as you stated above. That is simply not true. Check the graphs of BLS work force numbers. It is the ratio of retired persons to work force number that is increasing and going to cause the problem, NOT a decreasing work force. As the population steadily increases now about 300 million, so does the work force.

Posted by: David R. Remer at May 11, 2006 3:37 PM
Comment #147324

Lynne:

The budget deficit (which does not include any of the Iraq “war” spending) was less than projected, but the deficit is still growing larger…

This sentence only makes sense if war expense is increasing greater than the reduction in the deficit year to date. We have had war expenses since 2002 with the war in Afghanistan. Can you explain your point in more detail?

I think you are trying to say that the budget deficit is going up because war expenditures are offline. This doesn’t make sense to me because they have been offline for some time now.

Craig

Craig

Posted by: Craig Holmes at May 11, 2006 4:32 PM
Comment #147326

Lynne

OMB figures are generally more rosy that real…OMB uses cost basis accounting, NOT accrual basis accounting.

I know little of accounting procedure even though my little sister works for one of the big firms. Are you saying that the receipts reported by the OMB are in some way exaggerated or is it that, not being a business, they just report differently? If the numbers published by the OMB are not accurate do you know where one could find accurate numbers?

The press/TV usually data mine and present the results of poor math in accordance with what they perceive to be the expectations of their audience. Which is why I prefer to find the raw data and do my own calculations.

Thanks
A. H.

Posted by: Arm Hayseed at May 11, 2006 4:34 PM
Comment #147336
Are you saying that the receipts reported by the OMB are in some way exaggerated or is it that, not being a business, they just report differently? If the numbers published by the OMB are not accurate do you know where one could find accurate numbers?

If you use ‘GAAP’, i.e., generally accepted accounting principles, the country is in even deeper deficit than the Bush administration reports…

In 2005 the operating deficit for 2005 was $760 billion, or 238% HIGHER than the reported budget deficit of $319 billion…this gap is explained by using the generally accepted accrual basis for reporting (mandated for companies of $5 million…and the US government certainly has that figure beat!)…accural takes into account what the government is obligated to pay…the lower figure only shows what it has actually paid to date.

The accrual method gives a much truer financial picture…and the US is in deep financial trouble!

From 2004 to 2005, the net-operating-cost deficit INCREASED from $616 billion to $760 billion…that Republican group may not like to tax, but it is spending us into future harm…all of us.

Posted by: Lynne at May 11, 2006 5:10 PM
Comment #147337

Craig:

Don’t try to twist what I said…the budget deficit is increasing, but at a slower rate than projected. The budget does NOT include Iraq War expenses, so that is not even reflected in the budget deficit, so there is an even larger deficit than the budget deficit.

Posted by: Lynne at May 11, 2006 5:12 PM
Comment #147352

craig,

The fact that they produce less is also a problem, but your point that retired people spend money as much as people still working is incorrect. I’m afraid I don’t have any statistics on hand, but for more information just read The Next Great Bubble Boom by Harry Dent. Please forgive me if that comes off as name-dropping. My basic argument is that retirees simply do not spend as much as people who are still working.

David,

I’m sorry, I have taken a look at the official numbers from the U.S. census bureau and you are correct. About 3 million more people will be entering the workforce as opposed to leaving it. However, I was looking at the statistics and just 5 years ago we were having 10 million more entering the workforce than leaving it. 10 years ago that was 14 million. Needless to say, this isn’t a very positive trend when you are passing debts to the future.

Posted by: Zeek at May 11, 2006 6:02 PM
Comment #147362
My basic argument is that retirees simply do not spend as much as people who are still working.

Definitely NOT true for all retirees…we live in an “active adult” complex and these retired Californians are spending, spending, spending…$500,000 houses, buy a second house for “speculation”, and then buy a $250,000 RV…I find we’re not spending any less, either (and definitely NOT from California where you can sell your house and buy 2 or 3 from the proceeds)…our medical insurance goes up and up (and we paid little to nothing when working), never paid for prescriptions and now paying a co-pay for each and every one, still paying property tax (which isn’t coming down), still have to buy gas, car payment, house payment, lots of airline travel…

Nope…not spending less by a long shot!

Posted by: Lynne at May 11, 2006 6:58 PM
Comment #147425

Lynn:

Don’t try to twist what I said…the budget deficit is increasing, but at a slower rate than projected. The budget does NOT include Iraq War expenses, so that is not even reflected in the budget deficit, so there is an even larger deficit than the budget deficit.

I am not trying to twist anything. The sentence didn’t make any sense to me. The Iraqi war should not even effect if the budget deficit is going up or down in this year because we have had war expenses for four years now. If isolated it would raise the deficit but the trend would stay the same.

The Iraqi war should effect the size of the deficit but not the trend, unless war spending is going up dramatically.

I understand your point that using a different accounting method would produce differing results. The same is true with business as there is much fluctuation with GAAP.

Craig

Posted by: Craig Holmes at May 11, 2006 10:00 PM
Comment #147427

Zeek:

The fact that they produce less is also a problem, but your point that retired people spend money as much as people still working is incorrect.

I agree. I was responding to your point that basically implied (to me) that seniors stop spending. We are in agreement.

I have read the book that you mention. Harry Dent has written several over the last 15 years or so. The latest books premise is that the Dow is going to go over 40,000 in the next serveral years (before 2009 I think). And then afterwards we will enter into a great depression. Basically Dent believes that the Dow Industrial will mirror it’s performance of the twenties because of demographics.

I believe Dent is in error both on the increase of the Dow and the great depression because he fails completely to account for globalization. In addition Dent uses the Dow INDUSTRIALS to compare with in the 1920’s (the industrial age) to the Dow INDUSTRIALS in the information age. He should be comparing the Dow industrials of the 1920’s to the NASDAQ of today.

I am a “Dent light.” I think his basic premise is correct in that the age wave is something we need to respond to, but he over reads his premise because he misses the effects of globalization.

Here is a prediction by Dent:

In the early 1990s, he predicted that the DOW would reach 10k. This prediction was met with much skepticism. In 2000, he predicted that the DOW would reach 40k, a prediction which was repeated in and his 2004 book. In his book, he also predicted the Nasdaq will reach 13-20k. In January 2006, he predicted that the DOW would reach 14-15,000 by the end of the year

What I see here on this forum is that people take the depression part of Dent’s predictions as gospel but don’t deal with the boom part very well. When the Dow hits 15,000 this year I will take another look!!

This is exactly why I like Jeremy Siegel. Siegel deals with the same premise the Dent does, however Siegel takes Dent’s premise one step further by incorportationg globalization.

Craig

P.S. I think the Dow might hit 12,500 this year though!! But that is the very high end of my expectations.


Posted by: Craig Holmes at May 11, 2006 10:15 PM
Comment #147452

Zeek:

I found a very recent interview with Jeremy Siegel I thought you might be interested in. He actually discusses some of the same issue we have here.

http://www.msnbc.msn.com/id/12741803/

Here is a sort recent article about Harry Dent:

http://tampabay.bizjournals.com/tampabay/stories/2006/01/02/daily39.html

Enjoy!!

Craig

Posted by: Craig Holmes at May 11, 2006 11:53 PM
Comment #147455

WatchBlog Managing Editor:

Craig is correct above in calling for enforcement of our Critique the Message, Not the Messenger policy. It can be legitimate under our policy to question the veracity of a person’s comments, but, to claim that a person is lying steps outside our policy constraints.


From the Dictionary:

ve·rac·i·ty 1.) Adherence to the truth; truthfulness. See Synonyms of “truth.” 2.) Conformity to fact or truth; accuracy or precision: a report of doubtful veracity. 3.) Something that is true. 4.) Unwillingness to tell lies. [ant: mendacity]

So, what’s the difference? Veracity = Truth and the unwillingness to tell Lies. Mendacity, its Antonym, is defined as the willingness to tell Lies. So you have just said, Above, “It can be legitimate under our policy to question the willingness of a person to Lie, and the Truth of their comments but, to claim that a person is Lying steps outside our policy constraints.”

This makes no sense.

Another thing that makes no sense is to assume an Objective Equivalency between two conflicting “Messages” when one consists of the Truth and the other of a pack of Lies. Edward R. Murrow (and many others) have cautioned against this in the pursuit of so-called “journalistic objectivity.” The greater Duty is to the Truth, not to give Liars an Equal Platform to spread misinformation. This incident was not about Opinion, it was about Facts. Do you want WatchBlog to be a haven for Lies, and the Lying Liars who tell them? In what way would this justify WatchBlog’s existence? What is the Meaning or Sense of your coomments, Above, in light of the very definition of the Language used to convey ideas on this site?

Please respond. In detail. Thank you.

Posted by: Betty Burke at May 11, 2006 11:59 PM
Comment #147570

Craig, I appreciate you posting that article but I recieve Harry Dent’s monthly newsletter so there wasn’t much new in there for me.

In any event, I never said there wouldn’t be money making opportunities. In fact, I acknowledged that there would be, but I doubt that it will opportunities which the majority of people will be benefiting from in the long run.

I’m afraid I don’t understand the basis for your disagreement with Mr. Dent. I don’t think he’s right on everything, but in this particular case I do believe he is mostly on the money. If you could explain your position I would perhaps understand your reasoning.

Posted by: Zeek at May 12, 2006 9:21 AM
Comment #147606

Craig:

I sometimes wonder if you actually read and digest postings before you shoot back a “response”???

The Iraqi war should not even effect if the budget deficit is going up or down in this year because we have had war expenses for four years now. If isolated it would raise the deficit but the trend would stay the same

Of course the Iraq War doesn’t affect the budget deficit…I clearly pointed out that the funding for the Iraq War is NOT part of the budget!! It is funded through separate bills that pop up with regularity in the Congress. But the so-called “war” spending certainly does raise the overall deficit!

And, since when is spending on the Iraq War receding??? Maybe spending is not going up as fast as it once was, but we are still spending…

COST OF IRAQ WAR

Posted by: Lynne at May 12, 2006 11:18 AM
Comment #147624

Really, it doesn’t matter if it is Democrats or Republicans in power. If there is money, it will be spent; and if there isn’t money, it will be spent anyway. Which party has really cut spending (not cut spending increases)?

The real problem is that we’ve perpetuated the belief that our money belongs to the government and that the government can spend as it wishes without accountability. Unless we change the way people think about taxation and spending, government will continue to over do both.

Posted by: Richard at May 12, 2006 12:10 PM
Comment #147754

Zeek:

I’m afraid I don’t understand the basis for your disagreement with Mr. Dent. I don’t think he’s right on everything, but in this particular case I do believe he is mostly on the money. If you could explain your position I would perhaps understand your reasoning.

Harry Dent believes history repeats itself, it doesn’t in Rhymes. (who said that?). If you read through his book, he basically believes this is the roaring twenties and the stock market will do a repeat performance. That is where he gets the projection that the Dow will go to 40,000. That is also why he believes that the next decade will be one of depression. It is all about demographics and how much they are today like they were in the twenties.

I part company with Harry Dent because he does not take into account globalization. If you read “The World is Flat” by Friedman, and put it with Dent’s book, and combine them, you basically get Siegal. (Famous for “Stocks for the long Run” ) excellent book by the way.

Basically globalization waters down Dent’s thesis. Demographics show that our population is getting older. But it also shows that the world is young. It is just that it’s foreigners that have the young.

In a nutshell, I disagree with Dent because it seems he has not read “The world is Flat”. (I think he probably has, he just acts like he hasnn’t).

Two predictions that Dent made in January of this year are:

1. Commodities will fall
2. The Dow industrials will go to 14,000.

I think there is much merit to Mr. Dents work. I just think he overplays his thesis. That is why I count myself a “Dent light”.

I can see that growth in the next decade would slow, but I doubt we see a depression.

One more thing. Dent doesn’t take into account that we have learned anything about economics. It is sort of like the French and their “maginot line”. They correctly predicted that the Germans would come, but they thought that the Germans hadn’t learned anything between the wars. There is something called a Federal Reserve Board, and margin requirements. Dent might be right that the next few years the stock market will do well, but he is wrong that we haven’t learned anything since the 1920’s

That is enough for now,

Craig

Posted by: Craig Holmes at May 12, 2006 7:17 PM
Comment #147809

Craig, I will assume you are enlightening other people and not insulting my intelligence by implying I haven’t read/understood the book.

I have also read The World is Flat, I think it’s a great book, but not altogether applicable in this case.

A few comments I have (feel free to disregard these):

In his newsletters, Dent often revises his statements. Why? Because he realizes he makes mistakes (which is something that a lot of economists refuse to do). This is why I tend to disregard what he says on things like commodities. But I think his insights on historical trends driven by demographics are accurate to a reasonable degree. Perhaps it won’t be as severe as he is predicting, or even within 5 years of the time span he is predicting it will happen. But there is still more cause to plan for such a depression than to assume it isn’t going to happen.

When you say we have “learned” things since the 1920s, I want to laugh. I seem to recall a rather severe market crash in the year 2000 which disturbingly reflected the crash of 1920. It’s true, that times do change, but the basic nature of humans does not. Thinking that we have “learned” from our mistakes and somehow become infallible is the same line of thinking that was going on during the dotcom boom when Greenspan was warning everyone about irrational exhuberance.

I want to make one thing clear: I wouldn’t bet my life on being right. I’ve seen too many unexpected things happen in the stock market to do something as foolish as that. But I do think that preparing for such an event is extremely important at this juncture and that expecting things to go happily on forever is probably not a smart thing to do.

Posted by: Zeek at May 12, 2006 11:28 PM
Comment #147824

Zeek:

Thank you for your thoughtful post. Dent is way out there in his predictions.

But I think his insights on historical trends driven by demographics are accurate to a reasonable degree.

I think we agree on this. Reference my “Dent light” comments above.

When you say we have “learned” things since the 1920s, I want to laugh.

I don’t think the depression of the thirties will ever happen again. I could see something like what Japan has gone through though. As evidence that we have learned something I would offer that the distance between recessions is getting longer. Recessions are getting less frequent. The standard deviation of the economy is going down.

With Dent’s philosophy it is each to prepare. Just enjoy the good life until the Dow hits 40,000 and sell and put it in to goverment bonds. Then when the world goes to hell, buy at basement prices.

I think you are wise to prepare. I did a bit of preparing for the Y2K scare as well. I don’t think it is wise to build a shelter though.

I try to remember all of the scares in my lifetime starting with the population bomb, and on and on and on.

Craig


Posted by: Craig Holmes at May 13, 2006 12:24 AM
Comment #147838

a word that some folks don’t like to hear is the misery index, which equates to economic unhappiness.the lowest misery index was 2.97% in 1957,by mr eisenhower. the highest ever recorded misery index was at 22.00% in june 1980 by mr carter, mr carter used this index to beat mr ford, in 1976 the index at time was 13.50% under mr ford. in the four years mr carter was president the misery index almost doubled!!!

Posted by: Rodney Brown at May 13, 2006 3:57 AM
Comment #153571

Mr. Bush and his 70 Billion dollar tax break incentive was a masterful stroke of the GOP pen. The songwriters and poets are happy. And so the american musical lyrics are going to get far less critical of the man that lightened the tax burden on their mutual distributions: you got country, you got rap, you got rock and roll and most of all ,Mr. Bush, you got the democrats trying to stop Oprah Winfrey from using her big divvy-cuts to help Nelson Mandela finish building those schools in South Africa? And for that I’d say black politics is a social and complexed quagmire…

Posted by: PhantomX at June 1, 2006 9:29 PM
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