This week Congress is voting to raise the debt limit by approximately $800 billion. The debt limit, which before this week was set at $7.4 trillion, serves as a ceiling that reflects the legal amount that the government can borrow. Although the Bush administration claimed in 2002 that the debt limit would be adequate until 2008, their prediction was incorrect. When Congress raises the level this week, it will mark the third time since 2002 that it has needed to be raised. See this Watcher article for more information.

On November 17th, the Senate voted 52-44 to increase the debt limit, and the House is expected to vote to pass an increase today. While raising the debt limit is a necessary manuever in order to ensure that normal monetary transactions continue, the frequency with which this has happened over the past three years should cause alarm.

The current level of debt is harmful to the economy; it threatens the stability of Social Security and Medicare benefits, and it also increases interest rates, slowing economic growth. And serious debt reduction will be extremely difficult in the future. Federal revenue is currently at its lowest in half a century, at just 16.2 percent output. President Bush's push for permanent tax cuts along with the ever increasing cost of the war - in tandem with this low level of revenue - will make it difficult for this government to reduce either the national debt or the yearly deficit.

Congress' work this week to increase the amount of money the government can borrow is necessary yet somewhat fruitless; the increase is needed to fund programs and agencies, yet it is driving our country further into debt. Lawmakers should ask themselves, as they continue to increase the debt limit on an almost annual basis, who will end up bearing the majority of this burden in the future.

For more information on the debt limit and the budget see this Center for American Progress article.

As President Bush faces a second term, one of his first actions will be to define his goals and lay out agenda for the next four years. As Bush outlined on November 3rd, two of his most ambitious plans include both reforming the federal tax code and making changes to social security, all while continuing to fight a war against terrorism.

While this ambitious agenda is perhaps helped by the fact that the President has majority support in both Houses of Congress, it is hampered by some of the policy changes he forced through during his first term. Bush begins his second term with the economy in somewhat of a different state than he faced when first taking office. While in 2000 the nation enjoyed a healthy budget surplus, this year has the nation facing a large deficit as well as growing homeland security and defense needs. Federal tax revenue was $100 billion lower this year than it was when Bush first took office. On top of this, spending was $400 billion higher. This large discrepancy between revenue and spending has helped to create the largest budget deficit in our history. And, in response to four years of rising budget deficits, the Treasury announced on Wednesday that the government will borrow $147 billion in the first three months of 2005, to help fund its programs and policies. This level of borrowing, when it occurs, will be a new quarterly record.

Thomas Mann of the Brookings Institution recently said, "On the domestic side, huge budget and current account deficits, historically low federal revenues as a share of GDP, the approaching retirement of the baby-boom generation, health care cost inflation, and escalating spending pressure for homeland security and defense will handcuff a president hoping to pursue new policy initiatives.

This administration will seriously be looking into trying to make permanent some of the tax cuts they passed over the last four years, and Bush has already laid some of the groundwork for this. Permanent tax cuts would greatly impact the amount of federal revenue collected by the government, and would cause even greater financial strain for agencies and institutions that rely on the government for funding. It is estimated that permanent tax cuts could cost the government $1 trillion dollars in revenue between 2005 and 2014.

When Bush sends his version of the budget to Capitol Hill early next February, it will clearly demonstrate how far this administration is willing to go to push the policies they outlined at both the Republican National Convention and on the campaign trail. For more information on second-term tax and budget issues, click here and here.

"In These Times," a magazine committed to extending political and economic democracy, is publishing a series of retrospective analyses of the Bush record this week. Along with tackling foreign policy, education, health care, and a variety of other issues, the series highlights five different economic areas where Bush's policies have gone awry. The article focuses on:

- Bush's jobs loss record

- The unprecedented rise in home prices

- The overvalued dollar and the trade deficit

- The threat that structural budget deficits will continue far into the future

- The effects of massive military spending on the U.S. economy

The article can be found here.

The Economic Policy Institute released two important studies this week that offer insight into how federal fiscal policies can and do impact people.

The first study, a book titled “Exceptional Returns: Economic, Fiscal, and Social Benefits of Investment in Early Childhood Development,” argues that increased investment in Early Childhood Development programs (ECD’s) will have financial payoffs for society in the future. If the government increases spending now to provide quality education and development programs for low-income children in the early stages of life, society will end up paying significantly less in the long run in terms of costs for remedial and special education, criminal justice, and welfare benefits.

The study highlights the fact that a publicly financed, comprehensive ECD program for all children from low-income families would cost billions of dollars annually, but would create much larger budget savings over time. Policies that will serve to generate billions of dollars in budget benefits should not be ignored. This month the Congressional Budget Office reported that the final deficit for FY 2004 was $413 billion; as this study proves, however, by investing now on current programs, society will end up saving a lot of money in the future. Click here for more information on the deficit.

EPI’s second report, released today, is called “Less Cash in Their Pockets: Trends in Incomes, Wages, Taxes, and Health Spending of Middle-Income Families, 2000-2003.” The report examines certain income trends and highlights the fact that the economic well being of middle-income families has changed significantly over the last few years; and that specifically, many middle-income families lost ground between 2000 and 2003 and now have less income available to meet their needs.

Both of these important reports can be found the Institute’s web site, www.epinet.org. Their findings call into question some of the economic policy decisions that have either been made, or overlooked, by the executive and legislative branches of this country. As we face the highest deficit we’ve ever seen, it is important to keep in mind both how tax cuts really affect the middle class, and what kinds of investments the government can make now to help our economy in the future.

To learn more about how recent tax cut legislation will affect the middle-class families, read this report from the Center on Budget and Policy Priorities.