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On July 15th, the White House released the Mid-Year Budget Review of the U.S. Budget. The news that the budget deficit is spiking dramatically this year to $455 billion appeared to shock the Washington media, but it wasn't a surprise to CSE members who have watched the spending orgy of the past four years.
If the U.S. increases spending while revenues decline, the U.S. budget goes into the red. In fact, tax revenues dropped for three years in a row, which hasn't happened here since the Depression Era. While the liberals try to place the blame on tax cuts, it's actually skyrocketing spending and the economic slowdown that are causing the budget shortfall. The recession, war on terror, and corporate scandals like Enron have all played a part in slowing the growth of our economy and increasing the deficit in the short term. Of the $455 billion hole, about 53 percent is due to the economic downturn, 24 percent to homeland security and scads of other new spending, and only 23 percent is attributed to the three tax cuts enacted since 2001.
Obviously, some of the new spending was in response to the attacks of September 11th. Congress spent about $180 billion to prosecute the wars in Iraq and Afganistan, to create the Department of Homeland Security and the Transportation Security Administration, and to rebuild New York City. But spending has increased across the board for almost every government program -- and the biggest spenders of all are the same politicians hollering about the tax cuts.
In fact, the officials currently complaining about the tax cuts should be thanking the President for his leadership on that issue. If it weren't for the tax cuts, which are keeping the economy out of recession, things could be much worse. According to Administration economists, had there had been no tax cuts over the past three years, the budget would still be in triple digit deficits today, ($278B in 2003). The answer is obvious: Congress needs to continue to cut taxes and reduce spending to get the American economy and budget back into shape.
Another major economic indicator made news this week: the unemployment rate. U.S. labor markets continued to be sluggish in June, with the unemployment rate rising to 6.4 percent, up from 6.1 percent. At 6.4 percent, the unemployment rate is at its highest level since April 1994.
Some of the recent uptick in unemployment may actually be a positive sign. Total employment actually increased. It is important to remember that the unemployment rate represents the fraction of the labor force that is unemployed. This means that unemployed workers who have quit looking for work are not counted as part of the unemployment figure. The good news is that increased optimism about the economy leads more workers to actively seek employment, but current job market is not yet able to absorb these newly ambitious workers , so a rebounding economy can actually see a tick up in unemployment.
Boosted by approval in the House Government Reform Committee last week, a school choice voucher plan for the District of Columbia is moving forward. The fast track for this bill is not to pass it in a freestanding way, but as part of a broader spending bill for the District of Columbia. In fact, this has been the tactic the last three times Congress successfully completed a school choice bill.
To that end, on Tuesday July 15th the House Appropriations Committee passed the fiscal 2004 spending measure, which includes a $10 million fund to provide vouchers for low-income D.C. students to attend private schools. There was a fight-- the committee rejected by a 24 - 32 vote an amendment offered by Representative Chaka Fattah (D-PA) to put the $10 million into the existing D.C. school bureaucracy-- but the bill is on track.
The next stop is the Senate. The Senate Appropriations Committee will mark up its D.C. bill, probably tomorrow, and is expected to include $13 million for D.C. vouchers.
The logic of school choice is undeniable. The D.C. public school monopoly is utterly failing the District's school kids. Even Democrats like D.C. Mayor Anthony Williams support this proposal. Thanks to President Bush's leadership, and the active pressure of CSE members, we're hopeful that this plan will become law this year. If it does so, the D.C. plan will be a model for state and local governments to institute real school choice plans of their own.