For example, the Treasury Department, which still produces 10-year projections, estimates that the cost of the tax reductions that President Bush has proposed as part of his economic growth package will be $1.5 trillion over 10 years. That's more than double the $700 million price tag for five years. The Center on Budget and Policy Priorities figures that the 10-year figure is closer to $1.9 trillion.
How Long Does the Deficit Last?
Most of the argument about the effect of the deficit concentrates on its size. One side claims that the deficit is so big that it will force borrowers to pay higher interest rates as they compete with the federal government for cash. The other side's retort basically boils down to: "Will not." And the experts on either side are off and yelling.
The truth is the U.S. deficit as a percentage of gross domestic product, or GDP, is still very modest. There's a lot of leeway in a $10.5 trillion economy, and the Bush administration is absolutely right to point out that the proposed 2004 deficit is smaller, as a percentage of GDP, than in 12 of the last 20 years. The projected fiscal 2004 deficit of $307 billion is only 2.8% of projected U.S. GDP. Japan would kill for that low a deficit, and France, which recently became the third country in the European Union to face fines for running a deficit above 3% of GDP, can only look on with envy.
But the U.S. role in the global monetary system isn't like that of France or Japan. The U.S. depends on the rest of the world to buy U.S. dollar-denominated financial assets to fund our massive consumption of imports. And the world's economy depends on the continued ability of U.S. consumers to buy those imports. That makes foreign central banks very, very reluctant to dump dollars and dollar-denominated assets onto world financial markets.
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Jim Jubak
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