By Jerry Bowyer
Last week, Josh Bolten, the director of the Office of Management and Budget, announced that the budget forecast has been revised. The projected deficit, it seems, is sinking like a stone. The prior estimate had been $427 billion, the new estimate is down $94 billion to $333 billion. Knowledgeable observers braced themselves for the “rosy scenario” charges that pop up any time the Bush administration says that something might be going better than expected. But something happened that rendered this line of attack impotent: The government released its monthly cash-flow statement, and it told the same story as Bolten’s forecast — revenues are rising and the deficit is falling.
The Treasury budget is not a guess, a hope, or a forecast. It is a simple accounting of the dollars that have flowed into the federal government from tax revenues and the dollars that have flowed out through expenditures. Here’s what it shows: Total revenues were up 15 percent through the first nine months of fiscal year 2005 compared to the year-ago period. During the first nine months of fiscal 2005, the federal government ran a deficit of $249.8 billion, 24 percent lower than the deficit during the same period last year.
Sometimes the economic statistics printed in the newspaper look so-so; sometimes they look good, and sometimes they look great. That’s the problem with economic statistics. In the worst of times some of them are looking up, and in the best of times some of them are looking down. So what’s an investor to do? For starters, it’s always a good idea to find out whether the numbers you’re reading are based on somebody’s guess or somebody’s oath.
Numbers that show payroll job growth are based on a survey, and even figures for gross domestic product are based largely on an estimate. That’s why the former hops around crazily while the latter is typically revised upward during expansions. But there’s one set of data that we can confidently rely on — tax returns. If you’re an accountant and your clients habitually pay too much in taxes, you lose your clients. If you understate your income in order to pay less in taxes, you find yourself in Martha Stewart’s old cell.
As one would expect, with tax receipts bursting at the seams, the deficit is declining as well. In fact, according to economy.com, the deficit thus far in 2005 is $249.8 billion, which is 24 percent lower than the same time last year. Once again, Dr. Laffer should go to the head of the class; his Laffer curve has received yet another empirical verification.
You can look at any number of surveys, estimates, and revisions, and various secondary and tertiary indicators, but in the end cash speaks more clearly than anything else. The monthly cash-flow statement of the U.S. government says the economy is booming. Meanwhile, the wailing sirens of doom are running out of things to wail about. Personal income is rising, unemployment is falling, and the dollar has been restored by way of sound policies at the Fed. If politicians can make the Bush tax cuts permanent, fix Social Security, and streamline the tax code, the boom will echo for many more years.
– Jerry Bowyer is the author of The Bush Boom and an economic advisor to Blue Vase Capital Management. He can be reached through www.BowyerMedia.com.