Another Year, Another $1 Trillion-Plus

Wall Street Journal

One October irony is that even as President Obama hits Mitt Romney for lacking details and the press demands answers about the tax treatment of municipal bond interest, nobody seems interested in the substance of Mr. Obama’s supposed $4 trillion deficit reduction plan. Maybe someone will ask after Friday’s report showing another $1 trillion-plus deficit for 2012.

The Congressional Budget Office puts the figure at just under $1.1 trillion for the fiscal year that ended September 30. As a share of GDP, that’s larger than any other year since 1947, except for 2009, 2010 and 2011. The good news is that 2012’s reprise is about $200 billion lower than last year, but that’s like fixing a leaky faucet on the post-iceberg Titanic.

One reason the deficit fell is that tax receipts rose 6%, led by corporate income tax revenue that surged 34%. This shows that the best way to improve the fisc is faster growth, not tax increases. But individuals haven’t done nearly as well as business, with personal income tax revenue climbing just 3%.

Federal spending in 2012 came in at $3.5 trillion, about $59 billion or 1.6% less than fiscal 2011. Outlays fell in most places except the entitlement state, with Medicare growing by 3% and Social Security by 6%. Some of this reduction can be explained by fewer people receiving jobless benefits and unwinding the wars in Iraq and Afghanistan. The Pentagon budget fell 3% overall—that’s a hard cut, not a decline in the growth rate.

Another worrisome portent is that annual interest payments on debt held by the public fell 3%, to $258 billion from $266 billion in 2011, even as debt held by the publicincreased. That’s because the Administration is rolling over its debt sheet in the short term to take advantage of today’s bargain interest rates, which can’t last. The boys at the Treasury, not to mention the Federal Reserve (who are buying the long-term bills), are storing up trouble for future Presidents when rates rebound toward their historical norms.

Better hope the President’s $4 trillion “plan” really is sitting in a drawer somewhere.

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