Cheney says "deficits don't matter"..
Cheney said, "Reagan proved deficits don't matter." (From "The Price of Loyalty" pg. 291)
As a bit of background, the White House economic team has gathered to talk about the third round of tax cuts the administration was pushing to pass (from Nov. 2002):
"The package of post-Waco tax proposals, led by a 50 percent
cut in the individual tax on dividends, had been all but burried since
O'Neill took his stand in early September. It came up infrequently,
and always in the past tense - what we were thinking of doing but
couldn't afford.
After the midterms, though, O'Neill could sense a change
inside the White House, from Rove, Lindsey, and others. A smugness, a
sureness. No one mentioned to O'Neill that the proposals were back on
the launchpad. They knew better.
Now Cheney mentioned them again, how altering the double taxation of
dividends would provide some positive stimulus...
O'Neill jumped in, arguing sharply that the government is
'moving toward a fiscal crisis' and then pointing out 'what rising
deficits will mean to our economic and fiscal soundness.'
Dick cut him off.
'Reagan proved deficits don't matter,' he said.
O'Neill shook his head, hardly believing that Cheney - whom he
and Greenspan had known since Dick was a kid - would say such a thing.
He was speechless. Cheney moved to fill the void. 'We won the
midterms. This is our due.'"
I'm guessing that the Cheney meant that deficits don't matter politically.
As far as whether deficits matter economically, the only definitive thing I can gather from my half-assed web searching is that deficits do matter, but it seems that there is disagreement on how big the deficit has to be before it matters. At some point, the deficit creates a drag on the economy because the government is collecting money from people and that money is just going to pay the debt and not doing much in terms of economic work. Some of that money may just be leaving the country entirely if the debt is held by folks outside our country.
$10,450 billion - U.S GDP (2002 est.)
$ 2,033 billion - Tax revenues fiscal year 2002 (from a Treasury Department report).
$ 7,129 billion - current deficit
$ 318 billion - interest payment on debt.
A deficit that's gaining on the GDP in size seems kind of big to me, but I'm not an economist and don't really know anything.. Maybe I wouldn't feel nervous about our current deficit if there weren't any pending obligations on the horizon. However, there is social security to be concerned about given the baby boomers are going to start retiring in 2008. Also, the new Medicare package is pretty expensive. Something is going to have to give at some point. Maybe we can get away with not dealing with these costs until they start coming due?
Don't forget, the senate just approved a budget of $2,360 billion for 2005. Seems like we're headed for piling on an additional $330 billion to the debt.
As a bit of background, the White House economic team has gathered to talk about the third round of tax cuts the administration was pushing to pass (from Nov. 2002):
"The package of post-Waco tax proposals, led by a 50 percent
cut in the individual tax on dividends, had been all but burried since
O'Neill took his stand in early September. It came up infrequently,
and always in the past tense - what we were thinking of doing but
couldn't afford.
After the midterms, though, O'Neill could sense a change
inside the White House, from Rove, Lindsey, and others. A smugness, a
sureness. No one mentioned to O'Neill that the proposals were back on
the launchpad. They knew better.
Now Cheney mentioned them again, how altering the double taxation of
dividends would provide some positive stimulus...
O'Neill jumped in, arguing sharply that the government is
'moving toward a fiscal crisis' and then pointing out 'what rising
deficits will mean to our economic and fiscal soundness.'
Dick cut him off.
'Reagan proved deficits don't matter,' he said.
O'Neill shook his head, hardly believing that Cheney - whom he
and Greenspan had known since Dick was a kid - would say such a thing.
He was speechless. Cheney moved to fill the void. 'We won the
midterms. This is our due.'"
I'm guessing that the Cheney meant that deficits don't matter politically.
As far as whether deficits matter economically, the only definitive thing I can gather from my half-assed web searching is that deficits do matter, but it seems that there is disagreement on how big the deficit has to be before it matters. At some point, the deficit creates a drag on the economy because the government is collecting money from people and that money is just going to pay the debt and not doing much in terms of economic work. Some of that money may just be leaving the country entirely if the debt is held by folks outside our country.
$10,450 billion - U.S GDP (2002 est.)
$ 2,033 billion - Tax revenues fiscal year 2002 (from a Treasury Department report).
$ 7,129 billion - current deficit
$ 318 billion - interest payment on debt.
A deficit that's gaining on the GDP in size seems kind of big to me, but I'm not an economist and don't really know anything.. Maybe I wouldn't feel nervous about our current deficit if there weren't any pending obligations on the horizon. However, there is social security to be concerned about given the baby boomers are going to start retiring in 2008. Also, the new Medicare package is pretty expensive. Something is going to have to give at some point. Maybe we can get away with not dealing with these costs until they start coming due?
Don't forget, the senate just approved a budget of $2,360 billion for 2005. Seems like we're headed for piling on an additional $330 billion to the debt.