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The FY04 budget

Like many other conservatives, my biggest disappointment with Bush's presidency has been his fiscal policy -- spending money like a besotted Popeye on a three-day shore leave bender -- or so the thinking goes.

According to Larry Kudlow, however, things might not be quite as grim as generally believed. Now mind you, I don't think Dubya is ever going to be the Ludwig von Mises poster boy or anything, but take a look for yourself.

The latest budget numbers closing out fiscal year 2004 show slower spending growth, stronger tax receipts, and a $413 billion deficit that came in about $100 billion less than the Office of Management and Budget predicted at the start of the year and $64 billion lower than the Congressional Budget Office estimate.

Overall, according the Treasury Department, tax receipts increased 5.5 percent in fiscal year 2004 compared to a 3.8 percent decline in fiscal year 2003. Income-tax withholdings gained 2.5 percent versus a loss of 2.2 percent in the prior year. Corporate tax collections exploded 43.7 percent on the shoulders of near-record corporate profits.
Overall budget outlays increased 6.2 percent in the recent fiscal year, which is less than last yearís 7.3 percent. Excluding spending for defense and homeland security, as well as entitlements for healthcare and Social Security, domestic discretionary federal spending increased by a very moderate 3.4 percent in fiscal year 2004. If you remove net interest, then the budget increase was only 3 percent -- just a bit higher than the inflation rate.

As a share of gross domestic product, the deficit came in at 3.5 percent. Thatís the same fraction of national income as last year. This deficit share of GDP is also lower than Europeís and only about one-third of Japan's. This is more than acceptable. In the early 1980s the deficit share of the economy was over 6 percent, but that didnít stop the Reagan boom, which followed large-scale tax cuts and deregulation measures.


Is this the same Larry Kudlow, who just prior to the Iraq War, predicted that not only would the war be won easily and that we would be greeted as liberators, but that the liberation would lead to reduced oil prices and a huge job boom in this country?

Somehow, I am a bit skeptical of fiscal sanity emerging in a Bush second term, given that the Medicare bill starts around 2006. Also, there are the Bush goals of permanent tax cuts and private social security accounts. Even if we put down a $0 for the Iraq War (as Bush has been prone to do), it still doesn't add up in my view. While Kerry has spoken of dropping spending proposals if need be, Bush has not spoken of any sacrifice, not one trade off. But why should he? As long as Mr. Kudlow and others are passing out the kool-aid, the future is something that exists in a distant election cycle.

Yes PE, that's the same Larry Kudlow. Feel free to join me in supporting Barry Johnson's "Paul Krugman Amendment," to encourage economists to stick to the economy. :)

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