The Bush administration's highest economic priority for its remaining three years is to control the growth of federal spending and bring down the US budget deficit, John Snow, US Treasury secretary, said.
“The clear priority of the administration right now is the deficit, making sure that we achieve the president's objective of cutting the deficit in half by the time he leaves office,” he said in an interview with the Financial Times. This would put the deficit below 2 per cent of gross domestic product, low by historical standards...
What type of numbers are we talking about?
When he came to office in 2001, the president inherited a projected 10-year surplus of $5,600bn. But tax cuts and growing spending for the military and homeland security have contributed to a sharp reversal, with the Congressional Budget Office now predicting a $2,100bn deficit over the next decade. The annual deficit has been falling, however, from $413bn in the 2004 fiscal year to $316bn this year, according to CBO figures.
Mr. Snow did make it clear from where the deficit reduction won't come:
Mr Snow made it clear that, in spite of the focus on the deficit, the administration would not reconsider its low tax policies, pointing out that strong growth was producing the highest tax revenues in US history. “We have dealt with one of those important economic policy, philosophical and political issues are low tax rates consistent with fiscally responsible behaviour? I think the answer is clearly ‘Yes' as long as there's an intense focus on spending.”
You have to be a little careful with the "highest tax revenues in US history" bit. It's important to think in terms of revenues relative to GDP, and here it remains the case that receipts still look low relative to recent history -- and they are projected to remain so under current law:
Meanwhile, the president of the European Central Bank is warning the euro zone countries that it is time to get in the deficit-cutting habit too :
[Jean-Claude Trichet, European Central Bank president] issued another warning to eurozone governments to restore fiscal order, saying that the deficits in some countries were “a matter of great concern”.
So the official jawboning has begun. Now comes the hard work.