CBO: Tax Cut Deal to Push 2011 Federal Deficit to $1.5T

I am chuckling as the financial infotainment TeeVee crew is clucking that this massive deficit will have the market worried.  Are you kidding?  As I've written countless times, the equity market loves bigger and bigger deficits because it takes from the future to give to today.  The market does not worry about implications years (or even quarters) in the future.  Long term is next week.    Do you think the market was 'worried' when every worker was given a 2% pay raise Jan 1, 2011 via the payroll tax deduction?  No, that will only spur consumption over and above what it would be.  More iPads to be sold! If payroll taxes were cut to 0%, it would have celebrated even more.  Who cares if the empty Social Security lockbox (already empty) became even more empty - that's a problem for another quarter, year, or decade.  Same goes for any spending program - I am just using the social security payroll tax as an example.  Any program (tax cut or spending increase) that draws money into the today from the tomorrow, is a reason for celebration on 'the Street'.  Indeed I think the market would celebrate annual $4T deficits - can you imagine how high GDP would be? Perhaps 6%!  So once more we are looking at an annual deficit of 10%ish of GDP.  Even as the "recovery" rolls on.

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The 2011 figure reflects 3.1% GDP for the year, which is in line with the 3-3.5% a lot of economists' project.  Then in 2012 they see the deficit dropping to "only" $1.1 Trillion (again, half a decade ago $400B was a record), and then the figures drop dramatically because the CBO has to assume all the supports in the economy go away - i.e. the entire Bush tax package goes away.  Fat chance. :)  Hence, every projection post 2012 is useless and indeed I would not be surprised to see a package of aid to the states at some point in the next 18 months which will push up the '12 deficit as well.

Anyhow, nothing to worry about - I hear $400B will be cut from the deficit over the next 10 years aka $40B a year.  Woo hoo.

As amazing is despite all this whining about federal taxes by corporations and constituents, it's all dogma.  We want our cake and to be able to eat it too (give us all the services and entitlements in the world, but hell no we won't be taxed for it!)

• As a share of the economy, tax revenues in 2011 are projected to reach their lowest levels since 1950. The CBO projects that tax revenues will be 14.8 per cent of GDP in 2011, which would be 0.1 percentage point lower than in 2009.

Full report from the CBO here.