Economic outlook not rosy
Many of us have watched in recent months, and I have discussed several times in past columns, the signs that the nation's once-sluggish economy is showing improvement. Many of the most common indicators we use to gauge economic growth -- decreasing unemployment, a greater number of jobs, increased industrial production, and higher stock market values -- are all indicating continued future growth.
This past week, however, we received news that confirms what everyone already knows -- that although things are moving in the right direction, we still face severe challenges.
The Congressional Budget Office (CBO) released its annual ten-year forecast on the federal budget and the country's economic outlook. For those who may not be aware, the CBO is the non-partisan division of Congress that provides annual budgetary and economic analyses used to draft the budget.
The numbers in this year's report are indeed sobering, and come to the Hill just before President Bush sends his FY 2005 budget request to Congress.
The report released by the CBO and its director, Dr. Douglas Holtz-Eakin (who testified about this report before my colleagues and me on the House Budget Committee on January 27), show that we can expect large deficits in the short-term -- $477 billion for FY 2004, and $362 billion in FY 2005. These estimates also project that deficits will continue for the next ten years, although they will gradually decline beginning in 2005 and in each subsequent year.
For many people, seeing such large deficits automatically triggers an all-too-familiar question: How could we take massive surpluses from just a few short years ago and turn them into such a massive level of deficit?
To answer that question, it is first important to consider several factors which have occurred in the past three years that contributed significantly to this latest projection.
far, the most significant contributor to the downturn is our weak national economy. Following the economic boom of the late 1990s, the recession, slower levels of manufacturing, large unemployment figures, increasing trade deficits, and other such figures have contributed to the overall deficit increase.
Additionally, we must also figure in the unexpected costs associated with the aftermath of the September 11, 2001, terrorist attacks and the resulting war on terrorism, specifically the conflicts in Afghanistan and Iraq. In FY 2004, for instance, the costs associated with these conflicts and homeland security also contributed to the deficit increase.
Projecting the future health of the economy is far from being an exact science. The estimates provided to Congress by Dr. Holtz-Eakin and his staff are done based upon certain assumptions, including continued spending in support of our armed forces in Iraq and Afghanistan, the reinstatement of the death tax, a reduction in the child tax credit, and an increase in a variety of other taxes on American businesses and families.
I have made no secret that I favor a complete elimination of the sunset provisions in the 2001 and 2003 tax cuts. Republicans have championed tax cuts throughout the history of the party, and I don't think you'll see that opinion change anytime soon.
The improvements we're seeing in certain economic sectors will also play a part in helping eliminate these deficits. As unemployment rates and the Consumer Price Index (CPI) continue to fall, and as interest rates remain at their lowest levels in years, more revenue will be generated because more Americans will be working and infusing more money into the economy. Simply put, more growth begets more growth and higher revenue.
I strongly believe that more than anything else, the one thing we in Congress can do to be effective stewards of the money you send to Washington is to be fiscally responsible and cut wasteful spending.
As I mentioned in this column in late October 2003, Chairman Jim Nussle and the members of the House Budget Committee have identified nearly $100 billion in cumulative fiscal waste over the past ten years. It goes without saying the millions of dollars in duplicative and unnecessary spending in such areas as Medicare reimbursement, Supplemental Security Income (SSI) benefits, and Medicaid prescription drug coverage would, if eliminated, represent a significant step in reducing our deficit.
The path to the elimination of deficit spending is a long one, and achieving that goal will be difficult.
However, I can assure you that as your representative in Washington I will do all I can to ensure we balance the needs of the American people and the government's legitimate obligations with maintaining a strong level of fiscal responsibility.
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