U.S. Treasury Releases FY 2002 Deficit Numbers
by Guest Blogger, 10/28/2002
On Friday, October 25, Treasury Secretary Paul O’Neill and Office of Management and Budget (OMB) Director Mitchell Daniels released the Treasury Department’s summary of the budget results for fiscal year 2002, which ended September 30. According to this report, FY 2002 closed with a $159 billion deficit -- $2 billion larger than the $157 billion the Congressional Budget Office (CBO) predicted in its Monthly Review earlier this month.
The Treasury report notes that total FY 2002 receipts were $14 billion lower than it had anticipated in its Mid-Session Review in July. The recession’s effects on wages and salaries, as well as the stock market’s effect on capital gains, were cited as the primary reasons for the decline in individual income taxes this year. Despite these drops and the window on the economy’s performance they offer, O’Neill claimed that he is “confident that we are on the road to recovery and fiscal stability.”
Daniels, however, offered a more guarded, even pessimistic, view of the situation, saying that, “It’s now clear that the unexpected surge in revenues toward the end of the last decade was temporary and that revenues are returning to historic levels for reasons unrelated to legislative changes.” His solution to this independent return to “historic levels” of revenue and the increased defense and homeland security spending is to reiterate that it is “absolutely essential that we set aside business as usual and keep tight control over all other spending.” In other words, the $1.7 trillion tax cut enacted last year is not to blame for the deficit, but the deficit is the reason the country can’t address needs beyond homeland security and defense.
The deficit this year, however, is not expected to be much larger than 1.5 percent of the total economy and will likely decline over the next 5 years when surpluses will return. By comparison, the Center on Budget and Policy Priorities estimates that if the tax cut were to be made permanent, it would amount to 1.8 percent of GDP annually over the next 10 years. Given the relatively small deficit, then, it is not clear why Daniels and others are pushing so hard for all other spending to be cut. Why isn’t it essential that we spend the extra $7.4 billion each year needed to insure all uninsured children? Or, what’s not essential about spending the extra $2.5 billion annually to meet the government’s own legislated obligation to fund disability education programs. Why isn’t it essential to spend the extra $6.3 billion that could provide job training to 2 million adults and give them the skills and knowledge to earn more and provide for themselves and their families? Or even the $20 billion estimated to be necessary to help states and their vulnerable residents through a $50 billion budget shortfall? All of this represents necessary spending -- if Daniels and other fiscal conservatives are uncertain as to where to look for the funds to address these and other national priorities, and do not want to increase the current deficit, they might want to consider freezing their tax cut to free up a few hundred billion dollars. Finding the will to fund these needs is essential.