[From the diaries by susanhu. A wise person pointed out this diary’s brilliant plan to me.]
President Bush will call tonight for an unprecedented federal commitment to rebuild New Orleans and other areas obliterated by Hurricane Katrina, putting the United States on pace to spend more in the next year on the storm’s aftermath than it has over three years on the Iraq war, according to White House and congressional officials.
The president will call on Washington to resist spending money unwisely, but some in his own party are already starting to recoil at a price tag expected to exceed $200 billion — about the cost of the Iraq war and reconstruction efforts. As emergency expenditures soar — with new commitments as high as $2 billion a day — some budget analysts and conservative groups are warning that the Katrina spending has combined with earlier fiscal decisions in ways that will wreak havoc on the government’s finances for years to come.
Bush and Republican congressional leaders, by contrast, are calculating that the U.S. economy can safely absorb a sharp spike in spending and budget deficits, and that the only way to regain public confidence after the stumbling early response to the disaster is to spend whatever it takes to rebuild the region and help Katrina’s victims get back on their feet.
I don’t want to sound unsympathetic to the situation in states hit by Katrina. This is a horrible disaster that begs relief. However, at some point the bill from Republican mismanagement before Katrina will come due. And it is my fear this will be sooner rather than later.
Let’s look at the actual history of treasury receipts under Bush, with information from the Congressional budget Office. First, tax cuts don’t increase receipts. In fact they decrease them. In 2000, individual tax receipts (receipts from individual tax payers) totaled 1.004 trillion dollars. Many on the right will scream that I am using a boom year for comparison, so in 1997 and 1998 tax receipts were 737.5 billion and 828.6 billion respectively. For the years 2001-2004, individual receipts were 994 billion, 858 billion, 794 billion and 809 billion, respectively. Does anybody see a pattern here? When you cut taxes, revenues decrease, in this case by 18% from 2001 – 2004. Well, call me a liberal, but it looks like the laugher curve is wrong. Also note that Bush’s tax receipts for 2004 were lower than Clinton’s in 1998. As another comparison, individual income taxes as a percentage of GDP decreased over the same time from 9.9% to 7%.
In 2001, Bush had a surplus of 128 billion. At the end of 2004, he had a deficit of 412 billion. Fiscal conservatism at its finest.
And the recent surge in Federal Revenues in 2005 is not the result of the laugher curve. As Krugman noted in his colum Unspin the Budget Numbers:
It turns out that all of the upside surprise in tax receipts is coming from two sources. One is tax payments from corporations, up both because last year corporate profits grew much more rapidly than the rest of the economy and because the effective tax rate on corporations went up when a temporary tax break, introduced in 2002, expired. Both are one-time events.
The other source of increased revenue is nonwithheld income taxes – taxes that aren’t deducted from paychecks but are instead paid by people receiving additional, nonsalary income. The bounce in nonwithheld taxes probably reflects mainly capital gains on stocks and real estate, together with bonuses paid in the finance and real estate industries. Again, this revenue boost looks like a temporary blip driven by rising stocks and the housing bubble.”
So, Bush’s little experiment in the laugher curve is a failure. Even though he could have learned that lesson from Reagan’s experience he had to try it again. Fine. It’s done and it’s over.
For those of you who missed the news for the last 3 years, the US has engaged in a voluntary war. This war has cost 200 billion+ with no end in sight. As a result, the budget deficit has once again ballooned.
Simply off the top of my head, Katrina’s cost will increase the Federal deficit to between 400-500 billion. The US cannot afford this amount of debt.
Simply from a fiscal perspective, the US cannot afford to pay for a natural disaster and fight a voluntary war at the same time without bankrupting the US. As a result, the US must choose what to do. We can either fight the war, or rebuild after Katrina.
I think the answer is obvious.
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